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The Magazine for Canadian Listed Companies
Spring 2011$14.95
www.listedmag.com Publication Agreement No. 41983030
Michael McCainCEO Maple Leaf Foods
DIRECTOR’S CHAIR
The wisdom of William Dimma
DIRECTORSHIP USpecial Report on Director Education
Plus
2011
STATE OF THE
BOARD
UNDER FIREWith activist Greg Boland now on
the Maple Leaf Foods board, the pressure on Michael McCain keeps building
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Features
24 Change or be changed Michael McCain, CEO of Maple Leaf Foods, avoided a winner-take-all
proxy battle by agreeing to shrink the board and give hedge fund activist
Greg Boland a seat at the table. It bought time, but McCain’s long-term
future is still at stake
By Mark Anderson
30 State of the board: 2011 Exclusive extracts from the annual Korn/Ferry International review
of Corporate Board Governance and Director Compensation in Canada:
the biggest boards, the best-paid chairs, plus stats on board composition,
committees, share ownership, director evaluation and more
36 100 boards! (and counting) This month in The Director’s Chair: A conversation with legendary
director William Dimma, whose lifelong dedication to board service is
really a story of quality, not quantity
Interview by David W. Anderson
41 Directorship U Special Report: Director Education. Ready to bite on one of Canada’s two
accredited, English-language director certification programs? There’s lots to
like about both ICD and DeGroote—and plenty that sets them apart
By Paul Brent
Contents
“ We finally have someone reminding the other board members that they really do have a fiduciary responsibility.”
Candice Williams, Analyst, Canaccord Genuity Page 29
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Contents
Departments
6 Letters
7 Editor’s Note
9 Ticker 9 OSC moving on democratic reform
Say-on-pay, director elections, proxy voting all on the agenda
9 Ottawa, provinces gird for victory Supreme Court scheduled to rule on national securities regulator
12 Market dashboard New listings, IPOs, sector finance, performance metrics
13 No Bull: Is our economy overrated? Bruce Freedman cautions execs to see past the hype
17 Views 17 Corporate finance
Signs of life in the mortgage-backed securities market
By Robert Olsen
19 Law and governance CSA to governance disclosure laggards: we’re watching
By Poonam Puri
21 Executive compensation Boards are wielding more discretion on executive bonuses
By Ken Hugessen
22 Environmental affairs Don’t let the polls fool you: climate change is out there
By Sandra Odendahl
23 Investor relations The C-suite must ask IR to think—and plan—strategically
By Michael Salter
47 Handbook 47 Look who’s talking
Directors meeting with shareholders? It’s happening
49 The tablet tableau A new iPad? RIM’s Playbook? Choice is good
51 Ahead 51 Economy
Are we headed for full recovery? Or relapse?
By Ian McGugan
53 Watch list Key dates, data and events in the quarter to come
54 Insider 54 Texas-backed two-step
Bruce Walter, chairman, Iron Ore Acquisition Inc.
6 Listed//Spring 2011 www.listedmag.com
Letters Redux
Our kind of townJust a note to say how much I enjoyed the latest issue of Listed. I work in
corporate governance in New York and deal with Canadian issuers on a
regular basis and find the reporting and features terrific. When can I tell my
colleagues here that they can pick it up on New York newsstands? I
particularly like The Director’s Chair interviews. These are really great.
Dan KonigsburgDirector, Deloitte Global Center for Corporate GovernanceNew York, NY
Costs weighing on KinrossIt had to end sometime. Last issue in this space, I wrote how immediately
after each of our last two issues, the markets had shone good fortune on our
cover story companies, Magna and HudBay. I even suggested a “reverse SI
cover jinx” might be in play.
Scratch that thought. When we last left Kinross Gold (TSX:K), our winter issue
cover subject (“How to land a monster,” by Robert Thompson), its shares were
trading in the $18-$19 range; the massive Red Back purchase was behind it, its
November results were encouraging and it was all systems go for a multi-billion-
dollar expansion of its newly acquired Tasiast gold mine in Mauritania. But then
came January, and a sector-wide selloff in gold stocks that sent Kinross shares
tumbling. Shares in heavyweights Barrick and Goldcorp bounced back after a
few weeks, but Kinross continued to slide—falling below $15 in early March.
Why the discrepancy? That multi-billion-dollar Tasiast expansion, while
good for the long-term—Kinross’s output will almost double—is today just
a big drag on earnings. In mid-February, Kinross closed out its fiscal year
reporting sharply higher revenue and production, but lower earnings—just
18 cents a share, compared to 34 cents a share last year. Despite the decline,
CEO Tye Burt remains upbeat about Kinross’s prospects. In an interview
with Reuters, he admitted that 2011 would be “a bit of a transition year,” but
that he and his team “are pretty excited” about 2012.
Truth be told, he is also excited about the longer-term future and what it
holds both for his company and Mauritania. Kinross’s mine expansion is slated
to employ 3,500 workers during its construction phase and 2,500 workers dur-
ing production. Beyond that, Burt has laid out ambitious plans that would make
the project one of the most “responsible” natural resource developments in
Africa. To that end, the company has already announced funding for a mining
school in Mauritania’s capital. It also has plans to develop infrastructure that will
provide power, roads and clean water.
Steve Snyder, Listed’s The Director’s Chair interview, Winter 2010-11
Editor’s Note
www.listedmag.com Spring 2011\\Listed 7
I t all depends on your perspective, of course, but one of the biggest stories unfolding in the
Canadian public markets as this issue of Listed goes to press, is the proposed merger of the TMX
Group and the London Stock Exchange. We haven’t taken it on inside because it’s impossible to
know where things will stand by the time you’re reading this. The deal was announced with
the usual smiles and handshakes on the part of TMX CEO Thomas Kloet and his LSE counterpart,
Xavier Rolet, in early February. But then the federal and Ontario governments, in particular, stepped
in—with equal parts bravado and trepidation—to announce investigations to evaluate the deal’s merits
and ultimately decide whether to approve or reject it.
Everyone has their own opinion as to whether the coupling would be a net benefit for Canada,
Canadian issuers, shareholders and the greater investment industry. Thus far, about the only thing that’s
clear is that no one knows for sure. And so the ultimate decision—whether it comes from Ottawa or
Queen’s Park—will be a leap into the unknown.
Uncertainty is a theme that runs through much of the material that is in this issue of Listed—includ-
ing our look at the upcoming Supreme Court ruling on a national securities regulator, the OSC’s sudden
embrace of shareholder democracy and the near-term fate of our economy. But nowhere is it more
evident than in our cover story on Maple Leaf Foods, “Change or be changed,” by writer Mark Anderson
(page 24). Run by CEO Michael McCain and chaired by his father, Wallace, Maple Leaf (TSX:MFI) had
been firmly under the control of the McCains and long-time ally Ontario Teachers’ Pension Plan, with
each holding a one-third stake in the company since buying it in 1995. But then last year, in a surpris-
ing move, Teachers pulled out of the partnership—one that had yielded no appreciable, long-term gain
in Maple Leaf shares in its entire 15-year span. Over the course of several fateful and fractious months,
Teachers sold its holdings and surrendered the two seats it held on Maple Leaf ’s 14-member board.
In and of itself, that split is a story—one that, to date, neither party has said much about publicly (both
the McCains and Teachers declined interview requests from Listed for our story). But, as Anderson
details, what really caught the attention of issuers everywhere was Teachers’ decision to sell a chunk
of its shares—about 10% of Maple Leaf ’s total public float—to West Face Capital, a Toronto-based hedge
fund run by well-known activist shareholder Greg Boland. Other companies that Boland’s bought into
in recent years include Stelco, Saskatchewan Wheat Pool and, where he’s still a director, ACE Aviation
Holdings. If you detect a pattern (hint: underperforming companies, proxy battles, restructurings, Boland
scoring big on the outcome), imagine what it sounded like to the McCains. A 15-year, single-digit return is
not in Boland’s universe.
True to form, West Face started agitating. It took particular aim at the make-up of Maple Leaf ’s
board—even calling into question the true “independence” of lead independent director Purdy Craw-
ford. West Face then requested a special shareholders meeting to consider a non-binding vote on the
“independence” of multiple board members, to be held at Maple Leaf ’s annual meeting on April 28. In
February, Maple Leaf cut a deal—Boland dropped the challenge, in exchange for a seat on the board and
a company pledge to cut the board from 14 members to either 12 or 10 members for the 2012 AGM.
The McCains still have their shares and proportion of seats, but their de facto control over most board
decisions is diminished.
And that’s where things stand. As Anderson observes in his excellent article, April’s AGM might not bring
fireworks, but the stage is set for an interesting year—and a lot more uncertainty for Michael McCain.
Brian Banks Editorial Director [email protected]
Shifting sandsManaging uncertainty is just one role of directors and public company executives. But sometimes—like right now, for instance —it can feel like a full-time job
Volume 2, Number 1
Publisher
Martin Tully
Associate Publisher
Bryan Woodruff
Editorial Director Brian Banks
Art Director Levi Nicholson
Columnists Ken Hugessen, Ian McGugan, Sandra Odendahl,
Robert Olsen, Poonam Puri, Michael Salter
Contributing Editors David W. Anderson, Bruce Freedman, Miguel Rakiewicz
Writers Mark Anderson, Danny Bradbury, Paul Brent,
Joel Kranc, Dana Lacey, Cooper Langford, Celia Milne, Susan Mohammad, Robert Thompson
Advertising Advertising Director
Colin Caldwell, 416.964.3247 ext. 26
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25 Isabella Street, Toronto, ON M4Y 1M7 Coming in June: Don’t miss Listed’s Summer 2011 issue, with our usual great roster of columnists and a special report on corporate communications and investor relations.
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OSC moving on democratic reformCall for public comment on say-on-pay, director elections and proxy reform marks fi rst step towards regulatory changes for issuersBy Dana Lacey
T he Ontario Securities Commission, spurred in part by a recent
run of shareholder-friendly reform in Europe and the United
States, has spent the fi rst part of 2011 fi elding public comments
on three potentially dramatic regulatory reforms: mandated
say-on-pay, an end to slate voting in director elections, and a proxy voting
system overhaul.
Th e OSC issued a call for those comments in early January, and set a March
31 deadline. Th e proposal caught some people off -guard, despite the fact that
the OSC had pledged to do as much last year in submissions to the Ontario
government. Th en again, a commitment to “review protections” for share-
holder rights and corporate governance isn’t quite the same as a staff notice
requesting comment, with all signs pointing to a desire to proceed with
the creation of shareholder democracy measures considered radical only a
few years ago.
Of the three reforms, shareholder advisory votes on executive compensa-
tion, or “say-on-pay,” has the most profi le. Th e fi rst voluntary say-on-pay votes
in Canada were held just last year, but almost 50 companies have committed
to them in 2011. In terms of numbers, however, acceptance of the move from
slate- to majority-director voting—wherein directors are approved individually
and require majority shareholder support to stay on—is more widespread,
with well over 100 companies having adopted it or pledged to do so.
But voluntary uptake is one thing; an OSC move could make these things
mandatory for all listed companies. For that zeal, you can also blame the
fi nancial crisis and the excesses of Wall Street. “Th ese are areas the OSC identifi ed
Ticker
10 Listed//Winter 2010/2011 www.listedmag.com
Widespread awareness of problems with the proxy voting system—a channel
that processes the majority of shareholder votes—took hold last fall when
lawyers at Davies Ward Phillips & Vineberg in Toronto published a report
that was highly critical of the voting system. Citing examples of missed votes,
double counting and other problems, the paper called for increased transparency
leading up to shareholder votes, including improved access to informa-
tion, and a restructuring of what it described as a “sufficiently flawed” system
of counting votes.
Carol Hansell, a senior partner at Davies Ward Phillips & Vineberg and
one of the authors of the report, says that vote counting might not be as sexy
as the first two issues under review, but that without it, you’re nowhere. “What
difference does it make if you’ve got majority voting or say-on-pay if you can’t
tell how the votes are being counted?” she says.
Hansell, a governance expert, understands that many issuers may find all
three aspects of reform disconcerting. “Nobody likes change,” she says. Some
boards, adds Hansell, are worried about letting shareholders in on corporate
decisions around compensation when they may not understand the com-
plexities of the topic. Boards are also concerned that individual directors will
be targeted, and publicly embarrassed. “Directors for the most part are not
overpaid,” Hansell says, “and compensation is comparatively low in Canada.”
In a worst-case scenario, changes would put companies at risk of losing exist-
ing board members, while finding they’re unable to attract the same calibre of
people to replace them.
In response to these fears, the CCGG last year proposed a Shareholders Code
of Conduct (see sidebar). The idea is that if shareholders are going to be given
new tools to influence executive pay and boardroom composition, they better
know how to use them. Hansell and Griggs also stress the companies should
recognize there’s much to be gained by looking at situations from a shareholder’s
perspective. At the end of the day, too, they still make the final call.
In fact, while the CCGG and other big shareholder groups have so far dominated
the discussion, the biggest impact of any changes might be felt by small
and mid-cap companies that have not been keeping up with the governance
reform that’s happening in the large cap world. Griggs’ advice? Boards and
executives should start educating themselves about what their shareholders are
looking for—which doesn’t cost money—and look to the larger companies
for models.
Dana Lacey is a Toronto writer and editor.
as priorities,” says Leslie Byberg, the OSC’s director of corporate finance. “They’re
important issues for many stakeholders in our market.”
Byberg and the OSC remain guarded about their plans beyond here. “It’s
important for us to get public feedback,” Byberg adds. “We’re hoping to get
lots of different market participants who may be affected differently in these
areas.” She also acknowledges that new rules in other countries played a role
in the OSC’s thinking. “We’re mindful of the fact that there have been
international developments occurring around many of these issues, and we
think we should be paying attention.”
Issuers will have to wait and see what the future holds, but it’s likely going
to bring significant change, more work, expense and greater scrutiny. Share-
holder groups, for their part, are delighted. The Canadian Coalition for Good
Governance (CCGG), which represents most of the country’s largest institutional
investors, had recently been amping up the pressure on the OSC and
other Canadian Securities Administrators members on these issues. It
and others have been lobbying to bring Canada’s standards in tune with
recent reform in the UK, Australia, Scandinavia and, most recently, the
US—courtesy of the Dodd–Frank Wall Street Reform and Consumer
Protection Act.
“Canada is falling far behind,” says CCGG executive director Stephen
Griggs. “Virtually nothing has been done in corporate governance regulation
in Canada for many, many years, while the rest of the world has been moving
rapidly forward.”
In fact, two years ago, the OSC participated in a CSA project that, according
to Griggs, made governance more complicated rather than more transparent.
The timing didn’t help either, with the financial world and the economy in
turmoil. “Companies had better things to worry about, like their own survival,”
he says, “instead of regulatory rules that were at best standing still and doing
the same thing in a different way.” For this reason, he says he is glad the OSC
has opted to step ahead of the CSA and is “trying to understand how to apply
some of these global governing initiatives to the Canadian marketplace.”
It should be pointed out, however, that the very first point under the head-
ing, “Next Steps” in OSC Staff Notice 54-701, which contains the plan, is a
pledge to “coordinate our review and the development of regulatory proposals
relating to this review with other members of the CSA.”
R eform of the proxy voting process—and specifically, the methods used
to count shareholder votes—is the third component under review.
Democracy begets responsibilityShareholder groups urged to adopt Code of ConductAre investors ready to become more involved in governing the companies
they own? “Being an institutional shareholder comes with a lot of respon-
sibility,” says Stephen Griggs, executive director of The Canadian Coalition
for Good Governance (CCGG). In recognition of that—and to partially
allay issuers’ fears about letting “reckless” shareholders have undue influence
on pay decisions and board elections—the organization last fall proposed a
Shareholders Code of Conduct.
The Code of Conduct outlines best practices that a responsible investor
should follow. Those practices include requiring larger institutional
investors to implement a system for submitting and monitoring companies,
so issues can be dealt with more effectively when they arise. The code
also calls on large shareholders to publicize their votes and be clear about
their use of proxy advisory firms.
The code is modeled after the UK’s mandatory Stewardship Code,
which came into effect late last year. The UK’s Financial Services Authority
adopted the code following the European banking crisis, which show-
cased just how much influence institutional investors can have over even
the world’s largest companies. The code requires institutional investors
to implement monitoring and communications policies under which
they’ll be held more accountable for governing the companies they own.
The main difference between the two codes is that the CCGG’s
doesn’t put new demands on issuers. Instead, the focus is entirely on
the shareholder’s responsibility. “It’s important that there’s consensus
among institutional investors about how they should be dealing with
important aspects of their company holdings, like the right to vote,”
Griggs says. And that right comes with an obligation to understand what
you’re voting for, he says, rather than relying on proxy advisory firms
like Risk Metrics to guide decision-making. While advisory firms
can help identify issues and provide research, Griggs says, they’re not
always impartial.
To address this last point, the UK’s Stewardship Code also stipulates
new rules for major shareholders that manage money on others’ behalf,
which include implementing a policy on voting and disclosure of vot-
ing activity. Meanwhile, the European Union has embarked on a review of
shareholder disclosure requirements as it develops new rules for governance
at financial institutions. —D.L.
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A s chair and chief executive of the Canadian Securities Transition
Offi ce, which is laying the groundwork for the implementation of
a national securities regulator, Doug Hyndman could be out of a
job as early as April.
It all depends on how the Supreme Court of Canada rules that month
on the Harper government’s constitutional authority to assume jurisdiction of
securities regulation from the provinces. An Ottawa win, and Hyndman keeps
motoring toward the national regulator’s scheduled launch in July 2012.
A loss, and the future of securities regulation in Canada promises to remain
a provincial aff air, at least in the near term.
Hyndman, chair of the British Columbia Securities Commission before
federal Finance Minister Jim Flaherty hired him for the CSTO in 2009, has no
doubt what he’ll be doing the day aft er the court ruling—coming to work as
usual. “We are operating in the expectation that the court will confi rm that
Parliament has jurisdiction to enact securities regulation,” says Hyndman.
“Th ere are a number of things the court can do but our expectation is that we
will get a decision that will allow us to continue.”
Hyndman had been living this make-or-break reality since his appointment.
But in the run-up to the court decision, he’s now got lots of company—as
provinces, industry associations and investor groups have taken sides. When
the court deadline for provincial submissions had passed, long-time opponents
Alberta and Quebec were joined by B.C., Saskatchewan, Manitoba, New Brunswick
and Nova Scotia. All challenge Ottawa’s authority to undermine their regional
jurisdiction. In declaring its position, the group started making so much noise
it wasn’t long before Ontario, the only province backing a national regulator,
publicly complained the feds weren’t doing enough to keep the plan on track.
Ontario does have company: the Canadian Bankers Association, Canadian
Coalition for Good Governance, Canadian Foundation and Ontario Teachers’
Pension Plan all applied for status to appear before the Supreme Court to argue
for the plan.
No doubt, they’ve all been heartened that most legal observers think the feds
have a winnable position. Heather Zordel, a partner in the securities group at
Cassels Brock in Toronto, who sat on the committee that fi rst recommended a
national regulator, remains fi rm in her view that the Supreme Court will rule
in favour and the CSTO will be able to move on with its mandate.
However, the only legal opinions that matter to that national regulator’s
opponents are those of the court. Bart Johnson, a spokesperson for Alberta’s
Minister of Finance, Lloyd Snelgrove, is sure the court will see things Alberta’s
way. Like Hyndman, Johnson insists they have made no contingency plans
should they lose. Until the ruling, he says, the province is focusing on present-
ing its case and continuing “to work with other provinces to strengthen the
current system.”
D espite the state of the rhetoric, a victory for Ottawa won’t leave the
national regulator’s opponents shut out indefi nitely. Flaherty promises
to advance a bill in Parliament should the feds win, but the federal plan also
includes an opt-in provision should provinces change their way of thinking.
And even beyond that, there is still a lot of room for haggling between now
and next year. Fears that all the expertise and decision-making will be centred
in Toronto under a national regulator have been largely dismissed, for
example; instead, securities work that is currently regionalized according to
certain sectors—oil and gas, in Alberta, for instance—will continue in the
same fashion, even under a national regulator.
Margaret Franklin, CEO of Kinsale Private Wealth of Toronto and chair of
the international CFA Institute, is a big backer of the plan. She thinks more
support will move in the national regulator’s direction if the court gives it the
green light—support from issuers, in particular. Until now, she says, there has
been a risk that Ottawa would not win and so industry has remained largely
silent. She also thinks support and acceptance for strong central control of the
securities markets will build as the “patina” wears off Canadians’ infl ated sense
of our economic health in the wake of the recession.
Of course, there’s always the possibility of another wild card event upsetting
the outlook. Th e February announcement of the possible merger of the TMX
Group with the London Stock Exchange certainly fell into that category.
Detractors have argued that foreign ownership of the TMX might take
regulatory decisions out of Canadian hands. Some, like Ontario Finance
Minister Dwight Duncan, have called it a strategic asset in a strategic industry.
Zordel stresses that one must diff erentiate between merger activity of corp-
orations or holding companies, and the markets they serve. In other words, it
would be a merging of ownership, not regulatory decision-making. She speaks
for a lot of Canadians when she says a strong national regulator seems like a
more appropriate body to deal with a foreign board of directors than the
current system of multiple provincial regulators.
Given that one of Ottawa’s challenges before the court will be to argue that
the securities markets have changed enough that federal regulation is now
necessary, the merger proposal could be a blessing in disguise. And so, while
Alberta’s Johnson says, “this is a debate that will be won in the court of law,”
the forces of globalization, consolidation and an organized securities regulator
seem to be shaping that law as well.
Finance Minister Jim Flaherty: ready to roll
Choosing sides over a national securities regulator
Who’s forFederal government, Ontario government, Canadian Foundation for
Advancement of Investor Rights, Canadian Coalition for Good Governance,
Investment Industry Association of Canada, Canadian Bankers Association,
Ontario Teachers’ Pension Plan
Who’s againstB.C., Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova
Scotia governments, Mouvement d’éducation et de defenses des actionnaires,
Barreau due Québec, Institut sur la gouvernance d’organisations privées
et publisques
Ottawa, provinces gird for victoryAn April Supreme Court ruling promises to be the last word on the legality of a national securities regulator. But will it end the debate?By Joel Kranc
12 Listed//Spring 2011 www.listedmag.com
Ticker Market Dashboard
New listings/IPOs (Nov. 1-Jan. 31)
TSX Name* Type IPO Price ($) Industrials Dundee Capital Markets Inc. (DCM) New listing n/a Cervus Equipment Corp. (CVL) New listing n/a GWR Global Water Resources Corp. (GWR) IPO 7.50 Geodrill Ltd. (GEO) IPO 2.00 AbitibiBowater Inc. (ABH) New listing n/a Strad Energy Services Ltd. (SDY) IPO 4.00 General Motors Co. (GMM.U) IPO US33.00 Whistler Blackcomb Holdings Inc. (WB) IPO 12.00 Mining Western Lithium USA Corp. (WLC) New listing n/a St. Augustine Gold and Copper Ltd. (SAU) New listing n/a Strathmore Minerals Corp. (STM) New listing n/a Ratel Group Ltd. (RTG) New listing n/a White Tiger Gold Ltd. (WTG) New listing n/a Avion Gold Corp. (AVR) New listing n/a Noventa Ltd. (NTA) New listing n/a Gran Colombia Gold Corp. (GCM) New listing n/a Chieftain Metals Inc. (CFB) IPO 5.00 Pretium Resources Inc. (PVG) IPO 6.00 EMED Mining Public Ltd. (EMD) IPO 0.135 Royal Nickel Corp. (RNX) IPO 2.25 Karnalyte Resources Inc. (KRN) IPO 8.60 Jayden Resources Inc. (JDN) New listing n/a Teranga Gold Corp. (TGZ) IPO 3.00 Evolving Gold Corp. (EVG) New listing n/a Marathon Gold Corp. (MOZ) New listing n/a Sierra Madre Developments Inc. (SMG) IPO 0.15
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TSX-Venture Name* Type IPO Price ($) Capital Pool Metron Capital Corp. (MCN.P) IPO 0.10 Banyan Coast Capital Corp. (BYN.P) IPO 0.15 Carmen Energy Inc. (CEI.P) IPO 0.10 McGregor Capital Corp. (MCP.P) IPO 0.20 Aumento Capital Corp. (ATO.P) IPO 0.20 Focused Capital Corp. (FLO.P) IPO 0.20 Indigo Sky Capital Corp. (IDS.P) IPO 0.25 Canada Pacifi c Capital Corp. (CPR.P) IPO 0.10 Andele Capital Corp. (ADY.P) IPO 0.10 Oceanus Resources Corp. (OCN.P) IPO 0.10 Essex Angel Capital Inc. (EXC.P) IPO 0.10 Carolina Captial Corp. (CQC.P) IPO 0.10 Titus Capital Corp. (TIS.P) IPO 0.10
Capital raisedTSX
New listingsTSX & TSX-Venture
Capital raisedTSX-Venture
IPOs Public offerings Private placements Q4 2010 Q4 2009
Source: TMX GroupSource: TMX Group
Q4|Q4| Q4|92
TSX-Venture
TSX
Total $16.3bnup 5%
Total $4.0bnup 59%
$9.3bndown 21% YoY
$2.4bnup 18% YoY
2.5bnup 38% YoY $186m
up 216% YoY
$4.4bnup 147% YoY
$1.4bnup 248% YoY
71
62
47
www.listedmag.com Spring 2011\\Listed 13
CP
C
Cle
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Min
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Market Dashboard Ticker
Greenfi elds Petroleum Corp. (GNF.S) IPO 8.50 Redwater Energy Corp. (RED) IPO 0.40 Other Alexander Mining PLC (AXD) New listing n/a Innovente Inc. (IGE) IPO 0.85 Source: TMX Group, *Excludes funds, preferred shares, warrants. IPO price excludes warrants
CNSX Name Consumer Products & Services Golden Moor Inc. (MUD) IPO 0.10 Gold & Precious Metals Bastion Resources Ltd. (BSN) IPO 0.20 Ravencrest Resources Inc. (RVT) New listing n/a Shamrock Enterprises Inc. (SRS) IPO 0.25 GLR Resources Inc. (GLE) New listing n/a Metals & Minerals Rencore Resources Ltd. (RNC) New listing n/a Portage Minerals Inc. (RKX) New listing n/a Twin Glacier Resources Ltd. (TEL) New listing n/a Oil & Gas HLD Land Development Ltd. Prtnrship New listing n/a Shoal Point Energy Ltd. (SHP) New listing n/a Other Abattis Biologix Corp. (FLU) New listing n/a Carbon Friendly Solutions Inc. (CFQ) New listing n/a Blue Zen Memorial Parks Inc. (BZM) New listing n/a Technology BacTech Environmental Corp. (BAC) New listing n/a
Source: Canadian National Stock Exchange
Javelina Resources Ltd. (JRL.P) IPO 0.20 Cabre Capital Corp. (CCB.P) IPO 0.10 Ozcapital Ventures Inc. (OZZ.P) IPO 0.10 Lions Bay Capital Inc. (LBI.P) IPO 0.20 New University Holdings Corp. (NUH.P) IPO 0.10 Cleghorn Minerals Ltd. (JZZ.P) IPO 0.20 Woden Venture Capital Corp. (WOD.P) IPO 0.10 Weifei Capital Inc. (WF.P) IPO 0.10 Biovest Corp. I (BVC.P) IPO 0.20 Mining
Evrim Resources Corp. (EVM) New listing n/a Otterburn Resources Corp. (OBN) IPO 0.15 New Destiny Mining Corp. (NED) IPO 0.15 Zenyatta Ventures Ltd. (ZEN) IPO 0.60 Regulus Resources Inc. (REG) New listing n/a Baroyeca Gold & Silver Inc. (BGS) IPO 0.15 New Hana Copper Mining Ltd. (HML) New listing n/a NuLegacy Gold Corp. (NUG) IPO 0.25 Pacifi c Arc Resources Ltd. (PAV) IPO 0.15 Cougar Minerals Corp. (COU) New listing n/a Caza Gold Corp. (CZY) IPO 0.35 Atacama Pacifi c Gold Corp. (ATM) IPO 2.75 Colorado Resources Ltd. (CXO) IPO 0.40 Renaissance Gold Inc. (REN) New listing n/a Great Bear Resources Ltd. (GBR) New listing n/a Elgin Mining Inc. (ELG) New listing n/a Auriga Gold Corp. (AIA) New listing n/a Oil & Gas PetroNova Inc. (PNA) IPO 1.25 Adira Energy Ltd. (ADL) New listing n/a
Capital raised by sectorTSX & TSX-VentureQ4|
Q4 2010
Q4 2009
Source: TMX Group
Sector
Oil
& g
as
Str
uctu
red
pro
duc
ts
Div
ersi
fi ed
ind
ustr
ies
Fina
ncia
l ser
vice
s
Uti
litie
s &
pip
elin
es
ET
Fs
Life
sci
ence
s
Com
mun
icat
ions
& m
edia
0
1,000
5,000
4,000
3,000
2,000
6,000
7,000
8,000
9,000
10,000
Mill
ion
s ($
)
Rea
l est
ate
Tech
nolo
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Fore
st p
rod
ucts
14 Listed//Spring 2011 www.listedmag.com
S&P/TSX Price/Earnings Ratio(Trailing 12 Months)
Source: Scotia Capital; CPMS
40
35
30
25
20
15
10
Dec
. 19
79
Dec
. 19
81
Dec
. 19
83
Dec
. 19
85
Dec
. 19
87
Dec
. 19
89
Dec
. 19
91
Dec
. 19
93
Dec
. 19
95
Dec
. 19
97
Dec
. 20
01
Dec
. 20
05
Dec
. 19
99
Dec
. 20
03
Dec
. 20
07
Dec
. 20
09
5
1 month ago 3 months ago 6 months ago
Ene
rgy
Mat
eria
ls
Ind
ustr
ials
Con
s. d
iscr
etio
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Con
s. s
tap
les
Fina
ncia
ls
Tech
nolo
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Tele
com
Uti
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s
S&
P/TS
X
Source: Scotia Capital, Thomson Financial
S&P/TSX forward EPS revisions (Jan. 2011)
Sector
-20
-15
10
5
-5
0
-10
15
20
(%)
Higher recent fi gures represent positive earnings momentum and vice versa.
Ticker Market Dashboard
P/S (left axis) P/B (right axis)
S&P/TSX Price/Sales Ratio and Price/Book Ratio
Source: Scotia Capital; CPMS
2.0 4.0
1.8
1.6
1.4
1.2
0.8
3.0
0.4
1.00.6
2.01.0
Jan.
19
83
Jan.
19
85
Jan.
19
87
Jan.
19
89
Jan.
19
93
Jan.
19
97
Jan.
20
01
Jan.
19
91
Jan.
19
99
Jan.
20
03
Jan.
19
95
Jan.
20
05
Jan.
20
07
Jan.
20
09
Jan.
20
11 0.2 0.0
Jan.
19
81
6-month change in basis pointsP/S: +22 to 1.94xP/B: +20 to 2.1x30-year averageP/S: 1.0xP/B: 1.8x
6-month change in basis pointsP/E: +264 to 19.7x30-year averageP/E: 19.1x
Above: Forward earnings per share (EPS) revisions look at valuation from
the standpoint of analysts’ earnings revisions momentum rather than earnings
itself. Th e bars indicate the percentage by which analysts were raising or
lowering EPS expectations 6 months ago, 3 months ago and 1 month ago.
Higher recent fi gures represent positive momentum and vice versa.
Below: Plots of the long-term Price/Sales Ratio and Price/Book Ratio (left )
complement the more familiar Price/Earnings Ratio (right) for assessing
market valuation, as they dampen wild swings that show up in P/E. Th rough
December, P/S ratios were steadily rising (to all-time highs), which means
earnings/share prices have been growing faster than sales.
www.listedmag.com Spring 2011\\Listed 15
Canada vs. Australia: Commodities Bedfellows
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11 0
Market Dashboard TickerNo Bull
W hether you’re watching TV, viewing online or reading the newspaper, you can’t escape
the ubiquitous praise about Canada’s conservatism and all around brilliance during the
fi nancial crisis. We’re apparently the envy of the world and, on the surface, our future
looks bright: our banking sector, fi scal balance sheet, strong property market and abundant
commodities all do demand attention. But is our success really because we’re so amazing? Or is it simply a
function of extreme markets—external forces—for which we have no control and which can turn on a dime?
Th ere are strong arguments for the latter. While an examination of Canada’s GDP reveals large contribu-
tions from fi nancial services and real estate, where would those sectors be without our resource sales?
We sell rocks, trees and oil. China and India are the largest marginal buyers of commodities, generating
three-quarters of the world’s incremental demand. It’s their extraordinary demand in recent years that’s
fueled Canada’s success and their renewed appetite for raw materials in mid-2009 helped give Canada’s
economy the boost it needed to bounce back. Any doubt that Canada is disproportionately dependent on
commodities should be put to bed by the accompanying chart, comparing our stock market performance
to that of another major commodity exporter, Australia.
Th e remarkably close correlation between the two charts shouldn’t surprise those familiar with fi nancial
markets. Asset allocators (the guys who control the big money fl ows) simplistically categorize both countries
as commodity-driven and trade the stock markets accordingly. Th is would be nothing more than an inter-
esting phenomenon if it weren’t for the fact that money fl ows into a country’s stock market can also have
a big eff ect on the country’s economic well-being via the wealth eff ect. Canada needs China and India to
keep buying; but with both countries now tightening monetary policy, our gravy ride may be in jeopardy.
Th ere is a second external factor that gives cause for concern: U.S. interest rate policy. Canada has
historically mimicked U.S. interest policy and with our currency now so strong, is reluctant to break from
that longstanding relationship. Th e U.S.’s economic woes have resulted in U.S. interest rates being set at
emergency low levels. But are these low rates appropriate for Canada? Given that house price/income ratios
are at historically high levels, the majority of new mortgages are made with little money down and
banks have been asking the government to toughen borrowing requirements for Canada Mortgage
Housing Corporation-insured mortgages, the answer would appear to be a resounding no. Aft er all, the
bigger the bubble, the bigger the inevitable bust.
So perhaps Canada’s economic resilience is not because we’re particularly talented or more conservative
than the rest of the world. Perhaps, like Australia, we’ve got stuff in the ground that Asia wants. And perhaps
our banks look good, because a property bubble is being fanned by inappropriately low U.S. rates. Which
is why Canadian corporate decision makers should rethink their subscriptions; I for one, choose Th e Wall
Street Journal: Asia over Th e Globe & Mail. It’s what happens outside of Canada that matters most.
Bruce Freedman is a consultant who has worked as both a hedge fund manager and top-ranked equities analyst.
E-mail: [email protected].
Canada’s economy: creditwhere credit isn’t due? By Bruce Freedman
MSCI Canada Index MSCI Australia Index
M&A powers alongConditions are ripe for an even busier 2011
We gave you the deal of the year and the big picture
on mergers and acquisitions in Canada in 2010 in
our Winter issue. Since then, the fi nal tallies have
been calculated. Th e full year, according to PwC,
saw a total 3,001 deals worth $155 billion. How
good was that? Th e total number of deals was up
30% over 2009 (to a fi ve-year high) and the dollar
volume grew 65%. Th e biggest sectors: energy,
materials and fi nancials, which accounted for 61%
of total Canadian activity.
PwC predicts that the M&A market will strength-
en further in 2011. Many companies the world
over are sitting on large stockpiles of cash and debt
fi nancing remains relatively cheap. For Canadian
fi rms, one trend that’s also expected to strengthen
is an increase in the number of deals in emerging
markets. In 2010, only 14% of Canadian M&A
activity involved a non-North American company.
Th e charts below capture some of longer-term
trends in Canadian M&A.
Annual Canadian M&A
20
10
20
09
20
08
20
05
20
06
20
07
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150
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50
250
200
0
Capital IQ, PwC Analysis
US
$ m
il.
>$1 Billion Deals Announced
20
10
20
09
20
08
20
05
20
06
20
07
20
30
60
10
50
40
0
Source: Capital IQ, PwC Analysis
No.
of
dea
ls
RISING to a Higher Standard of Performance
Phoenix Advisory Partners is a division of American Stock Transfer & Trust Company, LLC (“AST”) and part of the Link Group, an international network of best-in-class providers of transfer agent services and employee plan solutions. LINK GROUP network
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www.listedmag.com Spring 2011\\Listed 17
Views
Corporate finance By Robert Olsen
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Securitization market stirs to lifeMortgage-backed securities, a vital source of corporate borrowing until the credit crunch and market crash, are back. Better deals for corporate borrowers? You might have to wait
H as the thaw finally started? More than three years after its sudden
decline and a subsequent near-stall, the Canadian securitization
market—the packaging of loans, their resale as interest-bearing
securities, and the billions in associated corporate and institu-
tional lending—had a modest recovery in Canada in 2010. In all, there were 16
public securitization transactions last year, providing approximately $11.3
billion in funding to asset-backed issuers—up from only about $8 billion
in 2009.
Even brighter news for corporate borrowers, perhaps, was the announce-
ment this January of the first Canadian commercial mortgage-backed securities
(CMBS) deal since 2007—a $206-million package of loans to RioCan REIT
and Calloway REIT, Canada’s two largest REITs. While the decline in the broader
securitization market had a severe impact on many different asset classes—
from auto loans and credit card receivables to lines of credit and consumer
mortgages—it was the decline in the commercial mortgage market that has
really hurt corporate borrowers.
Historically in Canada, commercial mortgage lenders/investors—including
life companies, pension plans, banks and money managers (both domestic
and foreign)—provided around $10 billion to $15 billion of mortgage debt
annually. Then, in the late 1990s, the commercial mortgage-backed securities
market got going—reaching a peak of around $4.5 billion in available capital
for the real estate industry in 2006. The subsequent loss of that financing option
left Canadian corporate borrowers in need of new financing with little choice
but to pay higher spreads charged by banks. With many earlier loans obtained
at the peak of the market (2005-2007) now coming due—an estimated $7
billion in the next five years—a resurgence in the CMBS market would also
be welcome news for borrowers by providing them with more refinancing
choices and, likely, at a lower cost.
T he securitization market began primarily as a risk management and
liquidity tool for the banks. By taking things such as consumer loans
(mortgages, auto loans, credit cards) that had traditionally been held in com-
mercial and savings bank portfolios and then packaging and reselling them on
the secondary market via interest-bearing securities, it improved the banks’
own risk ratings and their ability to issue new loans.
More significant, perhaps, was the securitization market’s development into
a source of corporate capital. Firms that had traditionally borrowed from banks
increasingly began relying upon securitization vehicles for funding, which were
sold, in turn, as securities on financial markets. In particular, the investment
banking subsidiaries of the major banks established multi-seller securitization
conduits to help companies raise capital. In Canada, this is most evidenced
by asset-backed commercial paper market. This nuance to the securitization
market resulted in the size of the market vaulting from $2 billion in issued notes
in the early 1990s to approximately $50 billion by the end of that decade.
With these changes, the market blossomed and the number of companies
raising capital through securitizations rose dramatically. As a tool for borrowers,
securitizations helped companies grow more quickly. As well, borrowers
were able to use these vehicles to lower the cost of their capital and increase
competiveness.
Then came the credit crisis. As noted above, while the decline in the securitiza-
tion market hit many asset classes, it affected corporate borrowers the hard-
est. Like other markets for securitized products (such as auto loans, credit
card balances, residential mortgages, etc.), the corporate mortgage-backed
securities market as a source of capital depends on the amount of demand in
the secondary debt market for CMBS paper. When demand dried up during
the credit crisis, so did this important source of liquidity to the commercial
real estate market. The fallout was sudden and crippling:
k Major lenders (including Merrill Lynch, Column Canada and Capmark
Canada (GMAC) reduced or suspended their CMBS lending programs; those
that remained widened their spreads and implemented requirements for more
conservative underwriting. This has had (and will continue to have) a nega-
tive impact on certain borrowers’ ability to refinance their conduit-funded
mortgages when they come due.
k Many former investors of securitized securities have simply left the space as
their corporate investment mandates shifted due to broader issues in the
securitization market. Other senior investors in Canada, meanwhile, remain on
the sidelines due to asset quality and liquidity concerns.
The above factors have kept CMBS spreads wider than underlying performance
would dictate in Canada.
W ho is feeling the impact of the dislocations in the CMBS market?
Important users of securitization funding in Canada include borrowers
in the retail, hospitality, office property and multifamily property space. Many
of their loans originated at the top of the market (2005-2007) and the resulting
securities have experienced large price declines (25%-40%) which will leave
a large percentage of them with negative or reduced equity just as they approach
maturity, making refinancing difficult without significant equity infusions
by borrowers.
An interesting (and frustrating) twist for some borrowers is the common
structural feature of many CMBS issuances, whereby if defaults (or other
triggers) in the securities issue structure reach a certain level, the note hold-
ers (or controlling classes) have the ability to direct the trustee to modify
the CMBS structure and/or loans within it to preserve the value of the note
holders investment. This feature can therefore force non-defaulting borrowers
to refinance at a time they may not have been expecting to, if others in the same
issue push the relevant trigger over the edge and cause a restructuring of
the issuance. This nuance could impact any commercial mortgage borrower,
as their loan may be part of a securitized structure without their knowledge.
18 Listed//Spring 2011 www.listedmag.com
Views
So when (if ever) will borrowers be able to take advantage of the lower
spreads, higher loan-to-value ratios and availability that oft en accompanies
non-recourse debt that CMBS used to off er corporate borrowers? In large
part, a lot hinges on what happens with the broader securitization market.
Th e fi nancial crisis revealed several weaknesses associated with securitiza-
tion in general, including CMBS. Lately, North American market regulators
have turned their attention from restarting the markets to focusing on market
reform, with current proposals aimed at enhanced transparency and reduc-
ing reliance on ratings, as well as increasing accountability by originators
and sponsors of securitizations. A more resilient and vibrant securitization
market, attracting a diversifi ed investor base, requires a better alignment of
economic interests, simplifi ed structures, clear rules for the transfer of risks
and standards of quality for underlying assets, more standardization, and
greater transparency and disclosure.
In the meantime, commercial mortgages continue to be originated—and
for the most part existing commercial mortgages refi nanced—with originators
carrying the assets on their balance sheets rather than using the CMBS
market (at wide spreads). Th e recent re-emergence of new CMBS transactions is
an encouraging sign—besides the fi rst Canadian deal since 2007, the interna-
tional market is also surging, with CMBS issues in the fi rst quarter of 2011
expected to top all of 2010. A signifi cant rally will make it cheaper for real
estate companies to raise the money they need to expand their portfolios,
easing the strain for corporate borrowers looking to refi nance.
Hope for that outcome aside, companies have few options in the meantime
other than to get ahead of the curve—any company facing refi nancing should
consider the choices as early as possible, since the benefi t of time will help
ensure the best arrangement possible under the current circumstances.
Th is article was co-written by Rishi Malkani, senior manager of mergers and
acquisitions at Deloitte in Toronto.
Robert Olsen leads Deloitte’s Capital Advisory practice for the Americas,
sourcing debt and/or equity capital for private and public companies. E-mail:
Value of Maturing CMBS Balances in Canada
2017
2015
2016
20
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20
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0.5
1.0
3.0
2.0
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Maturing CMBS Balances by Property Type
Retail 36%
Hospitality 5%
Industrial 11%
Missing 2%
Offi ce 22%
Multi-Family Residential 16% Other 9%
www.listedmag.com Spring 2011\\Listed 19
Taking disclosure gaps seriouslyThe Canadian Securities Administrators vows to get tough on governance disclosure by Canadian listed companies after a national review found many corporate practices not up to par
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5. Risk management. Instrument 58-101 requires issuers to disclose the principal
risks of their business and ensure that there is a system in place to manage
those risks. It also provides that various committees can be tasked with risk
management and that the issuer should disclose this responsibility in the com-
mittee’s description. While many issuers included statements of potential risk,
they failed to disclose which committees are responsible for managing it,
leaving the impression of a lack of real oversight.
W hen it comes to the functionality of corporate boards, issuers seem to
be asking investors to “take our word for it” with boilerplate disclosure.
Securities regulators are saying “that won’t do.” To help the process along,
the CSA provided examples show issuers how to issuers meet the requirements.
For example, in disclosing information on formal assessment processes,
issuers should be sure to include information on who is responsible for review-
ing directors. Are directors reviewed by their peers? Do directors complete
self-evaluations? Issuers should also provide information on who is responsible
for acting on the results.
In the area of risk management, issuers must provide enough information for
investors to understand risk management strategies. This includes not simply
highlighting risk factors, but also disclosing how often issuers review their risk
profile and how risk oversight is integrated into an issuer’s strategic plan.
Adding these guidelines to this report suggests that the CSA is getting serious
about compliance, and expects issuers to step up their game. It is now up to
the issuers to show they know the rules.
Poonam Puri is a law professor at Osgoode Hall Law School and Co-Director of
the Hennick Centre for Business and Law. E-mail: [email protected].
G iven that governing boards of Canadian public companies have
been under increased scrutiny in the wake of financial failure, one
would think that their compliance with corporate governance
disclosure requirements would be greater than ever. But accord-
ing to a recent compliance review published by the Canadian Securities
Administrators (CSA), corporate governance disclosure is not up to scratch.
The CSA reported an “unacceptable” level of compliance with National
Instrument 58-101 Disclosure of Corporate Governance Practices. Instrument
58-101 requires TSX-listed issuers to disclose corporate governance practices
and imposes less onerous disclosure rules on TSX-Venture issuers. The staff
of securities regulators in Ontario, British Columbia, Manitoba and Quebec
conducted a review of 72 issuers, including 46 TSX-listed issuers and 26 TSX-
Venture issuers.
In its last review, in 2007, the CSA reported that 36% of issuers were required
by provincial securities regulators to make prospective enhancements to their
corporate governance disclosure. In 2010, this increased to 55%. In response, the
CSA promises to continue to monitor governance disclosure, and that issuers
that continue to underreport will be challenged for additional compliance.
So where did issuers fall short?
1. The non-independence of directors. The CSA found that while a majority of
issuers noted the identity of non-independent directors, they frequently don’t
explain why they are not considered independent. Does a director have a
material relationship with the issuer that may interfere with the way in which
he or she exercises his or her judgment? Investors need to know. Issuers also
failed to provide information about leadership of independent directors and, in
cases where the board chair was a non-independent director, who the indepen-
dent directors turned to for guidance.
2. Training for directors. While 58-101 requires boards to disclose what
measures they take to orient new directors, the review found that a majority
of issuers did not reveal the nature of this training. Similarly, while a number
of issuers disclosed that directors are provided with, or are encouraged to
attend, educational sessions targeted at complementing their responsibilities,
many issuers simply stated that these services would be provided if necessary,
and failed elaborate on how this necessity would be measured.
3. Ethical conduct. Most issuers appear to have a code of ethics; however,
disclosure of detailed compliance regimes is lacking. While boards often
identified the committees that are responsible for monitoring compliance, they
did not provide an explanation of how compliance is monitored.
4. Who are the directors, and how are they performing? The CSA noted signifi-
cant deficiencies in the nomination of directors. While issuers often stated that
they had a process in place for selecting nominees, most failed to disclose it, or
provide reference to the corporate charter in which these processes are
detailed. A significant portion of the issuers also failed to describe how directors
are assessed once sitting on the board.
Law and governance By Poonam Puri
Issuers seem to be asking investors to “take our word for it.” The CSA is saying “that won’t do.” It promises to continue to monitor governance disclosure and that issuers that continue to underreport will be challenged for additional compliance.
40 to to
and one more…
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Taking back the bonusMore boards are starting to wield greater discretion in determining executive bonuses. Done right, the results are better than with pay-by-numbers formulas
To mitigate the possibility that the use of discretion in the determination of
annual bonus awards might be perceived as arbitrary or unjustified, a board
should ensure that the relevant criteria and processes are established ahead
of time, and that their decisions are fully informed by facts and well communi-
cated to executives and shareholders. To the extent possible, the board should
identify up front those events and considerations that may be part of the
evaluation process at end of year. The board may also wish to limit the size
of the adjustments in advance (e.g. at most +/- 25%), a constraint that would
be applied in all but the most extreme circumstances.
There are at least two other guidelines for effective implementation. First,
make the use of discretion a recurring message throughout the year, and
make sure it is discussed and understood by plan participants and the board.
Secondly, in the annual proxy, it will be critical to explain the rationale and
guiding principles for any discretionary adjustments. Today’s disclosure
regulations require that the means by which the committee came to each
significant compensation decision be fully explained, and a discretionary
adjustment requires the most careful explanation of all.
In summary, the use of discretion should not be entirely subjective, but
rather should be based on informed judgment, carried out through a structured
process, and supported where possible with reference to a scorecard
of metrics.
It may mean more work for the board, but there is little doubt that
when used carefully, informed judgment will almost surely lead to better,
more defensible decisions.
Ken Hugessen is founder and president of Hugessen Consulting Inc. E-mail:
I t’s a common refrain: boards would like a reprieve from packaged pay
formulas; to have the latitude to apply more discretion in determin-
ing executive bonuses. Increasingly, they’re getting it.
As shareholder and regulatory communities continue to focus on
improving executive compensation practices—and board accountability for
executive pay outcomes continues to increase—many boards are finding
ways to use their discretion, or, more accurately, their informed judgment,
to determine the most appropriate short-term incentive pay (STIP) for execu-
tives. The main goal: more defensible payouts that are more closely in line
with the board’s assessment of performance.
Originally, most bonus plans were fully discretionary. Over time, as bonuses
increasingly became an integral part of ongoing compensation programs,
companies began to use calculations and formulas to determine their amounts.
Tying bonus payouts to measurable results offers the merits of clarity and
simplicity, in step with the concept of pay for performance.
However, while offering objectivity, any formula will have its limitations. Many
factors, from changing external conditions to changing internal priorities, can
mean formula payouts wind up misaligned with the board’s assessment of per-
formance, and can create a moral hazard when reporting the financial results
on which awards are determined. This has led to a resurgence in boards’ use
of informed judgment to adjust incentives both up and down.
It’s important to point out that “discretion” in the present context doesn’t
mean the same as it did in the past. In older compensation plans, the focus
on discretion was frequently criticized for assessing and rewarding manag-
ers based not on the results they achieved but rather on their political skills
and interactions with evaluators. Today’s boards increasingly apply their
informed judgment through a structured process supported by inputs from a
scorecard of metrics that are agreed to in advance.
The two most common approaches used today combine a formulaic STIP
calculation with either a discretionary adjustment or a discretionary compo-
nent. In both cases, core business performance is typically measured quantitatively
and in a formulaic fashion, while discretion is generally based on a range of
“secondary” corporate performance factors and/or on individual performance.
By allowing for discretion, boards and committees retain flexibility to apply
their judgment without the constraints posed by strict adherence to formulas.
But the use of discretion also raises certain challenges, as follows:
k In design and ongoing administration, use of discretion entails more director
involvement on the part of the board and compensation committee, requir-
ing attention from directors, and increased communication with stakeholders;
k Discretion cannot offer the simplicity and objectivity associated with formulaic
incentive plans;
k If discretion is applied poorly or without credible explanation, the incentive
plan may lose credibility with shareholders and executives, along with its ability
to motivate management to achieve clearly stated goals.
Executive compensation By Ken Hugessen
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Older discretion-based plans were criticized for rewarding managers based on their political skills. Today’s plans typically use a structured process supported by inputs from a scorecard of metrics that are agreed to in advance.
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Environmental affairs By Sandra Odendahl
can’t cope with heavy storms. The Insurance Bureau is calling on govern-
ments to help Canadians adapt to climate change by replacing aging water
and sewer infrastructure, and by updating building codes to reflect the new
climate reality.
For others, the news isn’t always bad. Reports show that the length of the
growing season in southern Alberta is approximately 3 to 9 days longer than
it was 60 years ago. The areas of Alberta with a warm enough climate for corn
production have extended north 200-to-300 kilometres since the 1910s and
50-to-100 kilometres since the 1940s. The downside there is that the province’s
already parched south is getting even drier. A warmer climate in the West isn’t
great news for the forest sector either, where it has already been observed that
insect activity in the spring occurs a week earlier than it did 25 years ago. It’s
widely accepted that milder winters have helped lead to the proliferation of
mountain pine beetles.
In short, we’re already living in a different and less predictable climate than
our grandparents, and we’re going to have to deal with it. The climate change
conversation in the coming years will increasingly be about adaptation. No
sector of the economy will be unaffected, but some will adapt and perhaps
prosper more than others by being well-informed and well-prepared. Organi-
zations contemplating long-term business plans would be wise to keep
an eye on the many research initiatives and economic studies underway to help
identify where the risks and opportunities will lie in a new climate. Or better
yet, get involved and help shape the outcome.
Sandra Odendahl is director of corporate environmental affairs at RBC.
The views expressed are her own, not necessarily those of RBC. E-mail: sandra.
Y ou may have noticed that the conversation around climate
change regulation has shifted in recent months. Those who began
2010 betting on a North American-wide carbon cap-and-trade
system to help lower greenhouse gases have been bitterly dis-
appointed. A suite of competing climate change bills outlining plans for a
federal carbon trading system in the United States amounted to nothing, as it
became clear in 2010 that the U.S. Congress would never, ever pass any such
legislation. Then, earlier this year, Canada’s federal environment minister
reiterated our government’s long-held position that this country will not
launch a carbon trading system if the U.S. doesn’t do so first.
Coming on the heels of the world’s failure to strike a new carbon treaty, the
result is that it’s now hard to find a lot of enthusiasm anywhere for national
climate change regulation. But that’s a political reality, not a commercial one.
What every business planner needs to remember is that just because climate
change regulation has slipped on both Canadian and American national
agendas, climate change isn’t going away. Don’t expect to stop hearing about
it or having to deal with its effects.
First, there are other jurisdictions and regulators. Several state and regional
carbon trading regimes are still planned or underway. And carbon trading
remains a pillar of the European strategy to reduce greenhouse gases. Further-
more, the U.S. Environmental Protection Agency has begun to regulate the
emission of greenhouse gases from stationary sources such as power plants
and refineries. On January 2, new rules took effect that require large new
projects or plant upgrades that emit more than 75,000 tons of greenhouse gases
to have a permit. As of July, all new sources with GHG emissions of 100,000
tons per year or modified sources with GHG emissions of 75,000 tons per year
will be required to get a permit to emit. In Canada, virtually every province
has greenhouse gas emission targets, regulations or trading systems in place.
So, while the dream of a national plan for dealing with climate change has
faded, there remains a lot of regional and provincial activity.
The second big reason you won’t be able to ignore climate change is because
its impacts are now an ongoing reality. As the National Round Table on the
Environment and the Economy pointed out recently, these impacts will have
to be incorporated into major planning decisions by governments, businesses
and communities in a consistent and coordinated manner. Many sectors
already are facing the reality of having to adapt to new and less predictable
weather events, with the insurance sector at the front lines. The Insurance
Bureau of Canada has been unequivocal in blaming severe and unpredictable
weather—resulting from climate change—for huge spikes in certain kinds of
property damage claims in some regions. This includes water damage claims
that have doubled in the past decade due in part to an increase in the severity
of extreme rain events. Storms that were once considered one-in-40-year
storms are now happening every 6 years. The problem of water damage is
particularly acute in older parts of major cities, where aging infrastructure
The Insurance Bureau of Canada has been unequivocal in blaming severe and unpredictable weather —resulting from climate change—for huge spikes in certain kinds of property damage claims in some regions.
Climate change as usualEnthusiasm for federal carbon trading programs may be at an all-time low. But you’re still doing business on a warmer planet
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Investor relations By Michael Salter
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How strategic IR planning pays offWe know of Canadian companies with billion-dollar market caps and no strategic investor relations plan. They’re missing out on opportunities to generate additional value
of one-on-one meetings with analysts who may potentially initiate coverage.
Another idea is doing road shows with sell-side firms that are not covering
you, as a way of establishing a relationship.
k Quarterly conference calls and webcasts: Four times a year, the Street’s eyes
and ears are on your company—but too often there’s no plan to deliver a best-
in-class earnings call. Examples: there’s no PowerPoint presentation to
accompany the call script, and the MD&A (Management’s Discussion and
Analysis of Financial Condition) isn’t ready in time for the call. In the same
context, research also shows that IROs and management don’t spend enough
time preparing and practicing Q&As.
k IR website: It’s hard to overstate the importance of the IR website. Conduct a
Web audit to ensure you are keeping up with IR Web trends.
k IR calendar and budget: Planning the yearly IR calendar of activities and
setting the IR budget are foundation activities.
k IR contact database: Maintaining an IR contact database (analysts, institutional
shareholders, financial media, etc.) is another foundational element that’s too
often ignored.
I hold this statement to be self-evident: with a strategic plan, your company
will benefit from a better and more measurable IR program. While the
long-term value of a company’s stock correlates reliably to the company’s long-
term financial performance, strategically conducted investor relations can
help maximize equity valuation when markets are rising, and minimize
downside swings. The C-suite should be asking IROs one question: where’s
the plan?
Michael Salter is senior director of investor relations and corporate communications
at MOSAID Technologies in Ottawa. E-mail: [email protected].
B efore the start of a new fiscal year, publicly traded companies
of every size in every sector go through a familiar budget and
planning cycle. Reviewing the multi-year strategic plan and
annual operating plan is standard fare. What’s surprising is that
investor relations, the individual or group responsible for communicating
the company’s financial and business performance to the Street, too often
doesn’t have a strategic plan. Often, the C-suite isn’t asking IR to think
and plan strategically—with unintended consequences that include turn-
ing IR into an ad hoc, reactive function that loses out on opportunities to
influence stakeholders because not enough time is spent identifying goals
and objectives.
There are many reasons that companies fail to develop a strategic IR plan.
At small caps, the IR function may fall to a time-strapped CFO or is outsourced
to an IR consulting firm that is under budget pressure to keep it simple. The
C-suite may see having a dedicated IRO as too costly or simply unnecessary. The
already-overloaded finance or communications department is then tasked with
doing IR, with the result that daily tasks take priority over strategic planning.
Others see IR’s role as primarily fulfilling a long list of disclosure require-
ments—annual report, insider trading report, SEDAR filings, etc. No matter the
reason, whoever is charged with “doing IR” doesn’t have the time—and may
not have the mandate—to develop a strategic plan.
All this is unfortunate, because having a strategic IR plan helps IROs and
management set priorities, develop realistic goals and objectives, measure results
and allocate always-scarce time and financial resources.
A good starting point for planning is to ask a fundamental question: what’s
the goal of investor relations at your company? My own view is that IROs are
financial communications specialists, and our role—stated bluntly—is to support
the company’s share price and help sell its stock. Here’s an equation that captures
IR’s essential role: “Equity Value = financial performance + how that performance
is interpreted by a variety of constituents.” If you agree, then how the story is told,
and how often, is critical—and should result in a strategic IR plan that will
emphasize message development and outbound communications initiatives.
Your strategic perspective will influence the objectives that are set within
the primary areas of IR activity. Here are elements that will be in an IR plan,
and some issues to consider:
k Sell-side analyst coverage: Given the influence of sell-side analysts on equity
valuation, it’s surprising how few companies have a plan in place for maintain-
ing and increasing analyst coverage. Maintaining a good relationship with
a covering analyst may include setting a maximum time of two hours to respond
to their calls and e-mails; always following up with the analyst after they
publish a report or research note; and yearly face-to-face meetings.
Most companies don’t try to attract analyst coverage. That’s just wrong. For
all but the largest companies, convincing analysts to initiate coverage requires
a long-term plan. One idea is organizing analyst road show days, consisting
Having a strategic IR plan helps IROs and management set priorities, develop realistic goals and objectives, measure results and allocate always-scarce time and financial resources. It also helps a company maximize its equity valuation.
CHANGE OR BE CHANGEDMichael McCain, CEO of Maple Leaf Foods, avoided a winner-take-all proxy battle by agreeing to shrink the board and give hedge fund activist Greg Boland a seat at the table. It bought time—and fresh perspective—but McCain’s future and his family’s Maple Leaf legacy are still at stake
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arrived and, as a result of a deal he and the company struck to avoid a proxy
fight, McCain will face shareholders having recently agreed to eliminate one to
three more board positions for the 2012 AGM.
The member who’s future is the source of greatest speculation is 79-year-
old Bay Street legend Purdy Crawford, lead independent director and close
friend of the McCain family. Despite being the board’s senior independent
director, Crawford was singled out by Boland late last year for being too tight
with the founders. Others associated with the original power base are also
thought to be vulnerable, including Maple Leaf “lifers” James Hankinson and
Gordon Ritchie, both of whom joined in 1995.
Finally, unless the company makes significant progress on a contentious,
$1.3-billion operational makeover, there’s no guarantee that, by the time the
2012 AGM rolls around, McCain will have retained enough investor confidence
and board support to be secure in his position as chief executive.
For the one-time golden boy, whose steady leadership during the listeria
crisis of 2008 could reasonably be said to have saved the company, these events
of the last two years must come as a sharp personal rebuke. How did this happen?
The activist now in his midst has identified a lack of true independence on
the board as a key issue. McCain has staunchly defended their work, but the
scrutiny has turned Maple Leaf into a topic of interest in governance circles. It
would be ironic if having all those friendly and familiar faces on the board—
including those of his chairman father and brother Scott—becomes the CEO’s
undoing, if it gave him a false sense of security and insulated him from the
needs of shareholders not named McCain.
Certainly, Maple Leaf hasn’t been performing terribly well, either in
terms of financial and operational metrics or, more importantly, in terms of
stock price.
“Sure, Michael McCain did a great job handling the listeria crisis,” says
Canaccord Genuity analyst Candice Williams. “But if you take a longer-term
view, the share price has done nothing for 15 years. And when you take into
account Maple Leaf ’s dominant market position and brand equity, you could
certainly make the argument they might have done better.”
There’s more than a little truth to that: when Wallace McCain and Teachers
joined up to purchase Maple Leaf from UK-based Hillsdown PLC in 1995,
each taking approximately a one-third stake in the company, shares began
trading at a little under $14. As of March, they were trading at just under
$12—hardly the kind of returns to set shareholder hearts aglow.
There are also a number of financial and operational issues to contend
with. The rise in value of the Canadian dollar has resulted in increased
IN AUGUST OF 2008, CONSUMERS of Maple Leaf Foods Inc. deli meat
products began showing up at emergency wards throughout the country. By
the time the contagion had run its course, 23 Canadians had died and scores
more had been hospitalized, poisoned by a deadly bacteria, listeria monocyto-
genes, traced back to contaminated machinery at a Toronto-based meat-
processing facility.
As serious as the outbreak was, experts agree it might have been much, much
worse, had Maple Leaf (TSX:MFI) not acted swiftly and comprehensively to
shutter the facility and to recall all packaged meat products produced at the plant.
Then, contrary to standard business practice and against the advice of
his company’s own lawyers, Maple Leaf chief executive Michael McCain
did an unusual thing. He went on television, put himself in front of the
Canadian public, and apologized. “Tragically,” he said, “our products have been
linked to illness and loss of life. To those people who are ill, and to the families
who have lost loved ones, I offer my deepest and sincerest sympathies.
Words cannot begin to express our sadness for their pain.”
Coupled with a clear explanation of what had happened, and what steps
Maple Leaf was taking to address the situation, McCain’s apology and acceptance
of responsibility helped restore consumer confidence and avert what could
have been disastrous, long-term financial consequences for the company. Within
a year, Maple Leaf had returned to profitability, and its shares, which had dipped
to just above $7, were once again trading in the pre-listeria range of $11.
In this context, McCain’s public mea culpa can be seen as a brilliant tactical
move. More likely, though, it was simply an extraordinary case of a business
leader trying to do the right thing, a good guy stepping up and, for once, not
finishing last.
FAST-FORWARD TWO YEARS, AND the good guy is in trouble. He’s lost
the support of the Ontario Teachers’ Pension Plan, a key ally and co-founder,
which until last August owned 36% of Maple Leaf shares and held two seats
on the board. In their place, he’s been forced to appoint Greg Boland, CEO of
activist Toronto-based hedge fund West Face Capital, to Maple Leaf ’s board
of directors, after West Face bought from Teachers about 10% of Maple Leaf ’s
outstanding stock.
And McCain’s grip over the company that his father, frozen-food magnate
Wallace McCain, purchased back in 1995, and that has been run more or less
as a family fiefdom ever since, is about to weaken further. As Maple Leaf ’s
April 28 annual general meeting draws near, McCain must steel himself for a
session quite unlike that of just one year ago. Teachers is gone, Boland has
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free a seat on the board and agitate for changes in management, corporate
governance and strategic direction.
Such was the case in December 2008, when Boland used West Face’s 15%
stake in ACE Aviation Holdings, the parent company of Air Canada, to call for
the ouster of the entire ACE board. In a statement at the time, West Face said
that in addition to concerns over management decision-making and strategy,
it was acting “to ensure that the board of directors of ACE is sufficiently
independent to protect the interests of ACE and its shareholders.”
In order to avoid a nasty proxy war, the company ultimately gave Boland a
seat on the board, a compromise that saw the West Face CEO drop his demand
for a special shareholder meeting to vote on a new slate of directors.
It’s hard to know exactly when Boland turned his gimlet eye on Maple
Leaf (West Face, Maple Leaf and Teachers all declined interview requests).
It certainly occurred by the summer of 2010, when West Face purchased
its 10% stake from Teachers, setting in motion the same pattern of events
that played out at ACE. But Boland’s reputation for investing in distressed
companies—West Face made buckets buying into Stelco during its restructur-
ing, Saskatchewan Wheat Pool when it was teetering, and CP Ships when
it was rocked by an accounting scandal—makes it likely that he’d already
taken notice of Maple Leaf as early as 2008, when the company’s shares
were getting hammered by the listeria outbreak.
Of course, with Teachers and McCain holding two-thirds of the stock be-
tween them, and presenting a united front, there wasn’t an opportunity back
then to buy a relatively small stake and hope to wield any kind of influence
over either the board or management—say, by second-guessing the company’s
decision to spend lavishly on a five-year operational overhaul.
A year later, though, the first crack appeared in the Teachers-McCain
alliance, when the giant pension fund announced it was not renewing its
shareholder agreement with the McCain family, the terms of which had it
supporting Maple Leaf management in return for two seats on the board.
Teachers didn’t say why it pulled out of the partnership, but a combination of
miserable stock market returns and a risky, cash-sucking business strategy are
likely contributors.
But Teachers may also have felt its views and interests weren’t being given
sufficient weight by the McCain-dominated board. In October 2010, Teachers’
two board members, Wayne Kozun and William Royan, abruptly resigned
after management refused to sell off its highly profitable Rothsay animal
products rendering business, a move that had been floated by Teachers. The
resignations amounted to a final throwing up of hands; within weeks the
competition from large American meat and bread suppliers, while hamper-
ing export sales. Sharp increases in raw material costs—most notably hog
prices—have made Maple Leaf ’s packaged meat products more expensive,
and a series of acquisitions over the years have left the company with a rela-
tively inefficient network of 23 small production facilities across Canada. The
result is a productivity gap, whereby Maple Leaf ’s EBITDA margins of 7.5%
significantly lag those of its nearest American competitors, which tend to be
in the 11% range.
Not to suggest the boss is being blamed for these things—or at least not
entirely. “I think Michael’s doing a fairly good job,” says one analyst who
prefers to remain anonymous. “It’s true that the numbers have been down for
a while now, but that’s because the company keeps running into headwinds.”
In fact, the recent spate of investor unrest can be traced at least in part to
McCain’s ongoing and future plans to resolve Maple Leaf’s structural problems
and aforementioned productivity gap. In October, he clarified details
of a five-year, $1.3 billion strategic plan that involves closing several facilities
and consolidating operations in new, larger and more efficient plants;
reducing its range of products and increasing prices on remaining
products; implementing SAP management software; and undertaking new
promotional activities. The end result, he says, will be a 75% increase in EBITDA
margins to 12.5% by 2015—better than its nearest U.S. competitors, and enough
to drive the kind of “breakout results” the street has been waiting for.
Reaction from investors and analysts, however, could best be described as
lukewarm. “This isn’t their first strategic plan involving large capital expendi-
tures, and historically their investments haven’t delivered the kind of returns
shareholders were looking for,” says Canaccord’s Williams. “Investors are
questioning why this plan will be different, especially given its hefty price tag.”
Adds Octagon Capital analyst Bob Gibson: “It’s a questionable move.
Everyone’s taking a wait-and-see approach.”
Well, not everyone.
IF YOU ARE INVESTED IN HIS HEDGE fund, West Face Capital (25% returns,
compounded annually, since 1998), or own stock in one of the distressed
companies with which he has involved himself over the years, most often to
the enrichment of shareholders, you might consider Greg Boland a good guy.
If you sit on the board of one of those companies, however—especially
a board as cozy and collegial as Maple Leaf ’s—Boland is the enemy. First the
enemy without, as he deploys West Face capital to take a significant stake in
a target company, and then the enemy within, after he uses that stake to pry
A BOARD IN TRANSITION Last year at this time, the Maple Leaf Foods board had 14 members. Then, in November, Ontario Teachers’ Pension Plan representatives Wayne Kozun and William Royan resigned. The total sat at 12 until West Face Capital’s Greg Boland joined in February. His arrival was part of a deal that saw him withdraw a proxy filing challenging the standing of several independent directors in exchange for a board pledge to permanently cut its size to either 12 or 10 for the 2012 AGM.
Name Director Since PositionWallace McCain 1995 Chairman of the boardMichael McCain 1999 President, CEO, directorScott McCain DirectorPurdy Crawford 1995 Lead independent directorGordon Ritchie 1995 Independent directorJames Hankinson 1995 Independent directorJeffrey Gandz 1999 Independent directorChaviva Hosek 2002 Independent directorDiane McGarry 2005 Independent directorJohn Bragg 2008 Independent directorGeoffrey Beattie 2008 Independent directorClaude Lamoureux 2008 Independent directorGreg Boland 2011 Director
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So what are some solutions?
Those who argue that a strict independence criterion for service has weak-
ened boards offer a promising but vague alternative: loosen the independence
requirement and elect directors pragmatically, based on their ability to
contribute. But that’s hardly practical for shareholders who would be hard-
pressed to know who to vote for, given that boards produce the nominations
and there’s little substantive communication between the two groups. Judging
actual performance for subsequent elections would be even harder.
The British solution is to require only 50% of the board to be fully
independent, leaving ample room for “outside” directors (non-executive, but
neither fully independent) and current executives privileged with helpful
knowledge and perspective to serve on the board.
The Scandinavian solution, meanwhile, is to attack at the root of the
problem, at least in one area: director nominations. The conflict of interest
among directors self-nominating is simply eliminated by removing the
responsibility for director nominations from the board’s hands and placing it
with major shareholders. Boards are thus not self-nominating, self-judging
or self-perpetuating.
SO THERE ARE OPTIONS. And that’s critical. Because what the debate
on director independence also shows is we’re pushing up against the logical
limits of our current governance model. The simplicity of a single board
holding the global decision-making authority over itself, management and
the company has the virtue of unified power and the burden of trying to face
down conflicting interests.
We may have good reason to clean up corporate governance. But in our
current model, director independence seeks to square the circle by taking
conflict out of the one all-powerful body by putting in people with no con-
nection to the business. This approach may well suit a subset of board decisions
(e.g., adjudicating related-party transactions), but at the cost of reducing the
potential value of the board overall to the business.
One final, more radical solution worth considering, long championed by
governance thinker Dr. Shann Turnbull, is to separate fundamentally differ-
ent classes of decisions (governance, business, related-party transactions) and
assign them to different decision-making bodies, who are then composed
of people best suited to the task. For example, the essential governance
matters—oversight of audit, pay, director nominations and related-party
transactions—could be assigned to a “governance board” made of people
who logically hold these responsibilities: a representative set of owners, fully
independent of both the board they appoint and management.
Such thinking is not likely to find its way into the mainstream any time
soon. Until then, there is no escaping the challenge faced by owners and the
boards they elect, to carefully nominate and select directors who meet strict
independence criteria and who are able—by sheer intellect, motivation and
commitment of time—to learn the business well enough to add value to
executive thinking while remaining objective enough to keep the trust of
stakeholders in determining the fate of their corporations.
David W. Anderson is president of The Anderson Governance Group in Toronto
and a Listed contributing editor.
EVER-TIGHTENING RULES FOR director independence are hard at work
in a full-on effort to banish conflicts of interest from the boardroom. And,
in light of front-page board behaviour featuring apparent abuses of power
and questionable decisions made with serious conflicts at their heart, it’s clear
why regulators, stock exchanges and institutional investors around the world
have taken up the issue.
Yet even as quotas and guidelines show success in creating more structur-
ally independent boards in Canada and other countries, there is also a
growing concern that vital business knowledge and the board’s confidence
to question management are being squeezed out in the process. As the
losses accrue, they threaten to reduce the very effectiveness of boards that
greater independence was supposed to enhance.
When costs threaten to outweigh value, it’s time to revisit the assumptions.
To this end, some further discussion as to what independence can reasonably
achieve, how the costs can be minimized along the way, and what alterna-
tive means are available, is required.
THE ARGUMENT IN FAVOUR of director independence is compelling:
require directors charged with making decisions to be “independent” of the
interests that are engaged or affected by such a decision. Corporate stakeholders
ought to be able to rely on “clean hands” deciding matters of consequence.
Measures to put greater distance between management and directors are
well-based in the argument that conflicted decision-making has a reliable
habit of favouring vested interests holding power, and disadvantaging
uninformed or weak parties. Certain areas of decision-making over which
boards have responsibility make this conflict clear: director nominations,
director pay, audit oversight of financial performance and disclosures, related-
party transactions and executive pay.
Quite justifiably, then, independence logic has made its way into the
standing committee structure—audit, compensation and human resources,
governance and nomination—and the ad hoc committees reviewing such
things as related-party transactions and special circumstances. In fact, with so
many committees requiring independent directors, boards—already smaller
in number by choice—now often consist entirely of independent directors
with the exception of the CEO.
But it’s what happens next where the problems may emerge:
k Experience changes us. Even if directors are independent when elected, it’s
hard to remain functionally independent of management over time. Directors
commit considerable time to the role, they have income and wealth tied up
in the company, and they form bonds working closely with executives.
k Ultratransparency. With expectations of accountability at an all-time high,
all it takes is a hint of “dependence” or “relatedness” to impugn even the most
sterling reputations—as Purdy Crawford and Maple Leaf Foods discovered.
Some shareholders may even question a director’s purported independence
as a tactic to gain influence over board decisions and composition more to
their liking.
k Bureaucracy triumphs. Choosing certain members only to fill quotas hurts
boards’ effectiveness and credibility. We see it too often: as directors, these
recruits are polite, happy for their newfound status, grateful for the pay—and
largely unable to make any meaningful contributions.
IS THERE AN ALTERNATIVE TO DIRECTOR INDEPENDENCE?The intentions of fairness behind director independence are unassailable. But that doesn’t mean it’s worth pursuing at all costs and ignoring other optionsBy David W. Anderson
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agreed to do, and for much the same reason: to keep the weaker division
from acting as a drag on the stronger, hence unlocking value. In Maple Leaf ’s
case, its 90% stake in Canada Bread Co. Ltd. contributes disproportionately
to overall earnings (almost half of Maple Leaf ’s profit, versus only a third of
its revenue), leading some analysts to suggest the bakery business would fare
better, in terms of stock appreciation and shareholder value, as a stand-
alone company.
“I’d argue that breaking the company up now is premature,” says Williams.
“But you can achieve some of the same results by selling off non-core assets.”
But, critics suggest, as long as the board is treating Michael McCain with
kid gloves—as a brother, a son, a friend—none of these questions are
getting asked. “The most important thing is to create the board independence
necessary to objectively consider the various options,” says Williams.
The first step in that process came in early February, when Maple Leaf
agreed to appoint Greg Boland to its board in order to thwart a higher-stakes
proxy battle. The West Face founder had been calling for a special meeting
coinciding with the April 28 annual meeting where shareholders could vote
on a proposal to trim the size of the Maple Leaf board and replace as
many as six directors (including the departed Teachers representatives) with
a new slate “free of personal, financial and professional conflicts with the
McCain family.”
Making Boland a director, and agreeing to reduce the board size by at least
two members at next year’s shareholders’ meeting, was the price Maple Leaf
was forced to pay in order to achieve short-term peace. Octagon Capital’s
Bob Gibson says the compromise should suit both sides. “Who wins? Both.
McCain still has their people, and Greg gets his seat on the board and on the
key committees.”
As to whether Boland will have any more luck than did Teachers in influenc-
ing the board and management, the jury’s out. He’s not family, and if his past
record of shareholder activism is anything to go by, he has no interest what-
soever in being friends.
“He’s just one vote, but he’s shown the ability to get on boards in the past
and exert significant influence over the other directors,” says one analyst. “If
he’s unable to sway the board to his way of thinking, if nothing changes, he
resigns a year from now and that could potentially trigger a shareholder revolt.”
Adds Williams: “We finally have someone reminding the other board members
that they really do have a fiduciary responsibility. It’s true that he’s only one vote,
but the expectation is that he will act as the dissenting voice.”
For Michael McCain, then, the coming year promises to be a challenging one.
It’s important to note that he hasn’t been proved wrong. His restructuring
plan is proceeding apace, and if it starts showing signs of progress, of lowering
costs, increasing efficiencies and elevating margins, he may yet be proved
right. And while he may lose some allies as the Maple Leaf board shrinks, the
trio of McCain family seats will remain, giving him board representation that
should be roughly equal to the McCain’s one-third stake in the company.
He will have to show results, though. And he might just find that having a
dissenting voice on the board, an enemy within, might actually help him to
achieve that goal.
pension fund had sold its remaining 25% stake in Maple Leaf to a group of
underwriters at steeply discounted, fire-sale prices.
Greg Boland wasn’t throwing up his hands. Rather, by December, he was
in the midst of launching a proxy battle for control of the Maple Leaf board,
using his stake, now up over 11%, as a hammer to pound away at some of the
same issues that had frustrated Teachers—namely, the inability of shareholders,
even very large shareholders, to influence Maple Leaf’s McCain-friendly board.
Corporate governance, and specifically director independence, became the
focal point of Boland’s attack, the lever by which he hoped to wrest power
away from the McCains and make the company more responsive to the con-
cerns of smaller investors such as—but not limited to—West Face.
“We believe that lack of independence on the board and its subcommit-
tees has resulted in lack of management accountability for poor performance
and food safety,” Boland said in a rare newspaper interview late last year. He
then went on to single out Purdy Crawford as an example of a board member
whose personal ties to the McCain family—Crawford is an old school chum
of Wallace McCain, and also sits on the board of McCain Capital Corp., the
family’s private holding company—effectively co-opt his independence.
“We have the highest respect for Mr. Crawford’s achievements, but by our
standards he is not an independent director.”
That’s a bit of an open question. Crawford, for his part, responded by accusing
Boland of attempting to “redefine” accepted standards of director independence
—and if one views the definition of “independent” in its narrowest terms, as
someone with no material interests in a company other than his directorship,
he may well be right.
But not everyone cleaves to that view. Current governance thinking and,
to a lesser extent, regulations, argue for a wider interpretation, says Randall
Morck, a University of Alberta economics professor who specializes in
corporate governance issues. “Someone with longstanding ties of friendship
and loyalty to a controlling shareholder ought not to be considered sufficient-
ly independent to qualify,” he says. “One important purpose of independent
directors is to ask questions when major decisions seem questionable. Some-
times an insider can do this perfectly well, but some balk when it seems
likely to destroy a longstanding friendship. Friendship is a beautiful thing.”
And herein lies the crux of the problem. Shareholders, other than McCain,
do have questions. Questions, first and foremost, about the high cost of the
organizational refit that’s been approved by the board. Ian Cooke, a portfolio
manager with Calgary-based QV Investors Inc., is on record as opposing
such a large capital expenditure commitment, arguing that Maple Leaf has
historically failed to deliver when it comes to returns on capital. And Williams
of Canaccord Genuity has doubts about whether the investment will deliver
the results McCain is promising.
“The margins they’re shooting for are very, very high, and the capex to
achieve them is also very high,” she says. “There’s an argument to be made that
spending less and accepting lower margins is a less risky way to go.”
And those aren’t the only options. There’s Teachers’ suggestion of hiving off
Rothsay, and the far more drastic measure of splitting Maple Leaf up into two
separate companies, much as U.S. food and beverage giant Sara Lee recently
Activist: Greg Boland is pushing change on Maple Leaf’s board
Patriarch: Chairman Wallace McCain bought Maple Leaf in 1995
Icon: Purdy Crawford stands by his “independent director” status
30 Listed//Spring 2011 www.listedmag.com
The State of the Board 2011
The State of the Board: 2011Who are Canada’s corporate directors? How much are they paid? How do Canada’s boards operate? Who leads the way on best practices in corporate governance? We’re glad you asked
In 1993, governance consultants Patrick O’Callaghan and Associates began
taking the measure of Canada’s boardroom community, publishing its fi rst
annual review of Corporate Board Governance and Director Compensation
in Canada. Today, partner Korn/Ferry International is the title publisher
and leads the research. Th is year’s 92-page A Review of 2010 edition was
distributed in early March to selected clients and the chairs of the 292
boards in the study. Drawing on annual reports, proxy circulars and annual
information forms for fi scal years ending in 2009 and early 2010, it is the
most exhaustive annual tally of its kind published in Canada.
A few months ago, Listed teamed up with Korn/Ferry and Patrick
O’Callaghan to obtain exclusive pre-publication access to their report. Our
aim: to provide our readers with as many selected highlights as possible.
Th is feature is the result. We’ve extracted data on board structure, demographics,
performance evaluation, governance, compensation and share owner-
ship. All that and a feature interview with Patrick O’Callaghan, on trends
in director evaluation.
The big picture
Avg. Director Age: 61Avg. Director Retainer: $7 1 ,512 *
Avg. Non-Executive Chair Retainer: $198,861Proportion of Women Directors: 10%Boards with Majority of Independent Directors: 93%Boards with Independent Chairs: 52%Avg. Board Size: 9*See next spread for expanded compensation coverage
Ensuring that boards have a majority of independent directors is a critical
touchstone of all good governance practices. Th e majority refl ect this, but
a few laggards also persist.
Board independence
Type of independent board leadership
Boards without a majority of independent directors
Aastra Technologies Ltd.Canada Bread Co. Ltd.Corby Distilleries Ltd.Dollarama Inc.E-L Financial Corp. Ltd.European Goldfi elds Ltd.Genworth MI Canada Inc.IGM Financial Inc.InterOil Corp.
Lassonde Industries Inc.Linamar Corp.Martinrea International Inc.Power Corp. of CanadaSears Canada Inc.Senvest Capital Inc.Stella-Jones Inc. Trinidad Drilling Inc.
Notes on the data
• The data was collected from publicly traded equities and income trusts that were on one or more of the following lists: The Financial Post Top 240 (June 2010); The Report on Business Top 240 (July 2010); The S&P/TSX Composite Index (any time during 2009).
• All fi gures reported in U.S. dollars have been converted to Canadian dollars at an exchange rate of 1.14, which was the average exchange rate for 2009.
• The breakdown of companies in the survey by asset size is as follows: Under $500M: 17%; $500M to $1B: 14%; $1B to $5B: 42%; More than $5B: 26%.
• All fractions have been rounded off to the nearest whole number. As a result, some totals do not add up to exactly 100%.
16%Neither52%
Independent Chair
11%Lead Director
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Lean and mean, small and nimble. Th ese have been watchwords of
business strategy for years, and over time they’ve been taken to heart on
many of Canada’s boards. Big is now the exception, not the rule.
Board size
Canada’s largest corporate boards
Company No. of members
Great-West Lifeco Inc. 19
Toronto-Dominion Bank 18
Power Corp. of Canada
Rogers Communications Inc.
Empire Co. Ltd.
Power Financial Corp. 17
IGM Financial
Manulife Corp.
Board size distribution
24%10-12 directors
55%6-9 directors
4%16-19 directors
11%13-15 directors
6%5 directors or less
What constituencies do boards draw on for members? How do they work
together? Th e make-up of today’s boards is a critical ingredient in the drive
for more inclusive representation and better governance.
Board composition
Age of directors
Number of female directors
10%41-50
44%61-70
33%51-60
1%40 and under
12%71 and older
Mandatory director retirement ages5%Age 72
5%Age 75
<1%Formal policy, age not specifi ed
56%Not disclosed
18%No director retirement age
14%Age 70
46%
28%
14%
8%
2%
1%
<1%6 female directors
4 female directors
2 female directors
3 female directors
5 female directors
1 female director
0 female directors
Although nearly half of Canadian companies have yet to appoint a woman to their boards, women have been playing a slowly increasing role in corporate leadership at the director level. In 2000, for instance, only 48% of Canadian companies had female representation at the board level. That total now stands at 53%. The number of women chairing board committees is also increasing. Seven percent of the fi rms surveyed in the Corporate Board Governance 2010 review had appointed women to lead their compensation committees, compared to 4% in 2003. Ten percent of boards had women at the helm of their governance committees, compared to 6% in 2003.
32 Listed//Spring 2011 www.listedmag.com
The State of the Board 2011
What directors earn and how they are paidAfter six years of double-digit increases, the upward trend in director retainers eased off this year. Data gathered for the Corporate Board Governance 2010 review reveal Canadian directors earned just 4% more than the year before, with the average retainer coming in at $71,512. Meeting fees were essentially unchanged, averaging $1,589. There’s a big range and variety of activity behind those fi gures, however. Plus those particular fi gures only refer to cash, while some boards lean heavily to stock-based compensa-tion. And whether forced to or not, almost all board members hold shares in the companies they serve.
The big picture
Forms of compensation1%Meeting fee only
26%Retainer only
<1%No compensation
<1%Stock options only 73%
Retainer and meeting fee
Retainer size distribution
Top 10 largest board retainers
Company Total Cash portion Shared-based portion
Crescent Point Energy Corp. $390,611 $30,000 $360,611
Encana Corp. $314,800 $30,000 $284,800
Red Back Mining Inc. $290,000 $50,000 $240,000
Goldcorp Inc.* $236,613 $114,000 $122,613
Suncor Energy Inc. $232,680 $36,000 $196,680
Trican Well Services Ltd. $228,088 $20,000 $208,088
Advantage Oil & Gas Ltd. $225,718 $100,000 $125,718
Celestica* $210,900 $37,050 $173,850
Canadian National Railway Co. $205,725 $17,130* $188,595
Barrick Gold Corp.* $188,100 $84,645 $103,455
*Converted from US$
Average director retainer, by company size
<$500M $500M to $1B $1B to $5B >$5B
2009 $34,696 $51,050 $65,615 $114,514
2008 $39,940 $44,914 $59,872 $111,969
2000* $11,572 $14,694 $16,473 $24,949
*2000 values do not include the value of all compensation in shares or share units
Less than $10,000 .................................................................3%$10,001 to $15,000 .................................................................2%$15,001 to $20,000 .................................................................5%$20,001 to $30,000 ............................................................15%$30,001 to $40,000 ...............................................................9%More than $40,000 .........................................................63%No retainer ...............................................................................2%
www.listedmag.com Spring 2011\\Listed 33
Director share ownership
Top 5 largest board retainers
Company Total Cash portion Shared-based portion
Goldcorp Inc.* $871,251 $748,638 $122,613
Thomson Reuters Corp.* $684,000 $684,000 –
Canadian National Railway Co. $639,960 $137,040* $502,920
Bombardier Inc. $600,000 $600,000 –
Encana Corp. $564,800 $280,000 $284,800
*Converted from US$
Independent board chairs earn six-fi gure incomes, but the bulk of their compensation
is in share-based awards. Meanwhile, lead directors at companies without independent
chairs are paid more modestly.
Non-executive board chair and lead director compensation
Ninety-fi ve percent of directors owned and/or controlled shares in the companies on
whose boards they sat in 2009, although only 66% of boards require members to follow
an explicit shareholding guideline. In the U.S., only 45% of the 200 largest companies
have specifi c shareholding guidelines. Th e picture changes, however, when you also include
companies that have a requirement that directors hold shares until they leave the board,
which is a de facto guideline. In the U.S, 85% of the 200 largest companies fall into this
category. In Canada, among those surveyed for the Corporate Board Governance 2010
review, the total stands at 73%.
Board chair retainers
Avg. non-executive board chair retainer $198,861Avg. non-executive chair retainer with mandatory shares $247,769Avg. non-executive chair retainer without mandatory shares $157,937
Size of multiple on director retainers*
20%Five times the retainer value
8%Two times the retainer value
3%Equal to the
retainer value
2%Six times the retainer value
62%Three times the retainer value
6%Four times the retainer value
Boards’ preferred form of share ownership guidelines
15%Specifi c number of
shares or share units
69%Dollar value equal toa multiple of the annual director retainer
16%Specifi c
dollar value
*For the 69% of boards using dollar-value guidelines.
Lead director compensation
Average additional retainer paid to lead director. $33,825Proportion of companies with lead directors that paid an additional retainer to the lead director. 73%
34 Listed//Spring 2011 www.listedmag.com
Listed Your survey shows that the emphasis in director evaluation is on
director development rather than performance. Why is that?
Patrick O’Callaghan When you talk to most directors, they’ll tell you they
like the concept of developing evaluation programs that have the objective
of helping directors become more eff ective. It’s a development theme. At the
same time, I think directors feel that if one of their peers isn’t meeting per-
formance standards over a period time, the judgment is best left to the board.
Th ey may ask the director to move off the board, or the director may come
to that conclusion for themselves. So, most see it as a director development
process, but they do recognize that there are consequences if an individual
director isn’t meeting standards on a consistent basis.
Listed So, it’s the development process that feeds into performance evalu-
ation. Is that the general attitude?
Patrick O’Callaghan Yes. You can get directors arguing at either end of the
range. Some will say we’re doing evaluations to get an individual off the board.
At the other end, you get people saying that you want to make deciding the
fate of individual directors the purpose of evaluation. It skews the results. If
people believe the process is about moving individuals on or off the board,
they’re not going to be as forthright or concerned—or as helpful.
Listed What does your survey say about the role of the board chair in
individual director evaluation?
Patrick O’Callaghan Th e chair has a huge impact on the process. If he or
she really supports individual evaluation, you’ll fi nd that the processes are
more successfully implemented than if the chair doesn’t support it. Also, pro-
cesses oft en include a feedback session between the chair and the individual
director. If the chair is skilled at giving feedback, the process can be very
eff ective. But sometimes the chair isn’t that skilled, so you have to consider
the benefi ts of having someone else provide the feedback, say the chair of the
governance committee or, in some cases, an outside consultant. In my view,
though, it’s best that the feedback comes from someone who has experience
working with the board.
Listed Aft er conducting this survey, what would you say are the most
important trends in individual director evaluation?
Patrick O’Callaghan I think the main trends are twofold. First, individual
director evaluation is being adopted by most boards. Eighty-eight percent
of the directors we interviewed sat on a board that had some kind of individual
evaluation process. Th at’s a huge result, especially when you consider it was
about 45% nine years ago, when we last looked at this in detail. It’s signifi cant
that our survey also showed the need for letting boards design their own
evaluation processes, based on a multitude of considerations.
Th e most signifi cant fi nding, though, is that about 86% of the boards that
do have individual director evaluation systems are fi nding them productive
and useful. It’s beyond meeting some regulatory requirement. Individual
director evaluation has become a really useful tool for helping to improve
board eff ectiveness.
Listed Why is individual director evaluation important?
Patrick O’Callaghan It’s important because each director contributes in his
or her own way to the total board. If you want to improve board performance
as a whole, you have to work at improving the component parts. Historically,
that hasn’t really been addressed, but over the past few years, there’s been a move
towards much more thoughtful feedback processes for individual directors.
Evaluation is particularly important in today’s environment. It’s a director’s
responsibility to monitor the performance of the organization. But they also
have to add value. You want be sure they are delivering on both fronts. Th ere’s
an increasing emphasis on the mix of skills and backgrounds in the director
selection process. So, once you’ve appointed a director, you want to be sure he
or she is making the contribution that you hoped they’d be able to make.
Listed How is director evaluation handled?
Patrick O’Callaghan Basically, there are two forms. Th e fi rst is self-evaluation,
in which an individual director performs his or her own evaluation through a
process. Th e other form has directors assessing the contribution of their peers.
Th is is oft en done along with self-evaluation. Each of these processes can be
formal or informal. You can ask a director if their board has an individual
evaluation process, and they’ll say, “Yes.” But that could mean they simply have
a conversation with the chair each year. Another director might say, “Yes,” but
they’ll be referring to a quite formal process. Th ey might fi ll out a questionnaire
or they might rank themselves. Th ey might have a formal conversation with the
board chair or an outside consultant.
Listed Your report shows that more boards are adopting formal processes.
What meaning can we read into that?
Patrick O’Callaghan I think people are simply taking the process more
seriously. Th ere was an early reluctance to really delve into individual per-
formance. Th ere was a feeling it could really upset the culture of the board.
Others would say the board acts as whole, not as individual members. Th ere
was also perhaps a reluctance to put such senior, experienced people into
some kind of performance-evaluation system. Th ose attitudes have really broken
down, I think because there is support for the fact that those boards using an
individual director evaluation have discovered that they are useful.
Listed As more companies adopt evaluation processes, should we be look-
ing for some form of standardization?
Patrick O’Callaghan I don’t think you want to do that. One of the big risks
of individual director evaluation is that someone will look at what another
company is doing and say, “We’ll just follow them.” But there are so many factors
to take into consideration when you are designing an individual director evalu-
ation process. What’s the experience of the board chair, for example, in
communicating and providing background? Has the board ever gone through
any kind of an evaluation? Is there a controlling shareholder? Should a third
party be engaged, or should it be an internal process? And these are just some
of the considerations in designing a process. Th e individual evaluation
process at a given board has to come from the consideration of a multitude
of factors, leading to a process that works for the individual board.
Measuring Up: Trends in director evaluationIndividual director evaluations have become a priority for the majority of Canadian boards. In 2010, 88% of boards report that they have developed an evaluation process, compared to just 45% in 2002. The issue is so important, that in this year’s Corporate Board Governance review, Korn/Ferry and Patrick O’Callaghan and Associates made it the focus of a special report and conducted a survey of 175 Canadian directors on the topic. To discuss the results and the issue’s importance, Listed spoke to managing partner Patrick O’Callaghan.
Interview by Cooper Langford
The State of the Board 2011
www.listedmag.com Spring 2011\\Listed 35
How boards conduct individual director evaluation
Self-evaluation 63%*
Informal process 21%Formal process 42%*Some boards do both.
Peer-evaluation 75%*
Informal process 21%Formal process 54%
Director attitudes toward director evaluation
Purpose of director evaluation process
26%Director development only
19%Don’t know
67%Yes
62%Yes
14%No
19%No
19%Don’t know
11%Director renomination/removal only
18%Primarily director renomination/removal
45%Primarily director
development
Has the peer-evaluation process resulted in an improvement of board dynamics?
Has the peer-evaluation process resulted in an improvement in director performance?
Additional editing and research by Cooper Langford and Susan Mohammad.
36 Listed//Spring 2011 www.listedmag.com
The Director’s Chair
www.listedmag.com Spring 2011\\Listed 37
The Director’s Chair
100 boards! (and counting)If the Guinness Book of World Records included a category for most directorships, we’d nominate William Dimma. The common thread? His faith in free enterprise
Interview by David W. Anderson Photography by Jeff Kirk
It’s hard to imagine anyone with more to teach you than William Dimma. Chair, director, president, he’s done it all, exceptionally well, dozens of times over. In this instalment of The Director’s Chair, governance expert and Listed contributing editor David W. Anderson taps Dimma for his candid views on key board leadership issues: good chairs, bad chairs, working with CEOs, responding to shareholders, succession planning, age limits and Canada’s nagging “international embarrassment.”
William DimmaPrimary role Director and Audit Committee Chair, Magellan Aerospace Corp.
Additional role Chair, Advisory Board, TEL-E Group Corp.
Former president A.E. LePage Ltd. and Royal LePage Ltd., Torstar Corp., Faculty of Administrative Studies (Dean), York University
Former chair Home Capital Group Inc., Canadian Business Media, Monsanto Canada, Swiss Reinsurance Co. Canada and Swiss Re Holdings (Canada) Inc., York University
Former directork 56 corporate boards, including: Royal LePage Ltd., Brascan Financial Corp., Brookfield Asset Management,
Canada Development Corp., Delta Hotels, Enbridge Inc., London Life Insurance Co., Royal LePage, Sears Canada, Torstar Corp., Trizec Corp., Union Carbide Canada Ltd.
k 45 not-for-profit boards, including: Canada Club of Toronto, Canadian Council for Native Business, Canadian Opera Co., Economic Council of Canada, Greater Toronto Airports Authority, Hospital for Sick Children, C.D. Howe Institute, Institute of Corporate Directors, Toronto Symphony Orchestra, Trillium Foundation
Education BASc (University of Toronto), P.Eng (Toronto), MBA (York), DBA (Harvard; gold medalist)
Professional accreditation ICD.D
HonourskOrder of Canada (1996)kOrder of Ontario (2000)kKnight Commander of the Order of St. Lazarus of JerusalemkHonorary D. Comm (Saint Mary’s University), Honorary LLD (York)kFellow, Institute of Corporate Directors
Current age 82
Age when first became a director 34 (1963)
Years of board service 48 years
The Director’s Chair
38 Listed//Spring 2011 www.listedmag.com
I come back to the governance committee; a well-working governance
committee should think about chair succession as a process and actively manage
that process from one chair to the next. Even at the point of recommending
directors for appointment to the board, the governance committee should be
thinking of the board’s longer-term leadership requirements. Once directors
are on board, the governance committee can monitor director performance
and aspirations, noting which directors who are especially suitable and able
and even encourage director education.
The board chair also has a responsibility to think carefully about succes-
sion, engage the governance committee constructively, and avoid trying to
choose a successor independently. At least once a year the governance committee
should discuss with the chair, and then with the board, chair performance,
succession objectives and options, keeping ahead of any need for change.
David W. Anderson Many boards aspire to managing their leadership
succession better, as well as succession for the rest of the board. In your
view, how long should directors serve on a board—and what consider-
ations should precipitate director turnover?
William Dimma I’m of the view that director turnover should be based entirely
on performance, regardless of age or tenure. One of the best directors I’ve served
with was Allan Lambert, a former chair of TD Bank, who was an effective
director of Brookfield until he was 91. Yes, performance does degenerate with
age but there are enough exceptions that we shouldn’t use age as the criterion.
But a performance criterion for director turnover does place a great burden
on board chairs and governance committees. Too many chairs regard it as
awkward and embarrassing to tell directors they are not right for the board,
so I understand why boards may resort to age or tenure. But this isn’t good
enough. The chair and board have to take it as their mission to find and keep
the best directors for the right amount of time.
David W. Anderson If boards are to manage their succession based on
individual director performance, would that not require the use of an
evaluation process that was robust, credible and embraced by the board—
the kind that boards have almost universally avoided?
William Dimma Yes, it does mean boards would need to adopt a formal
director evaluation system. Directors have to step up to the plate to make reality
closer to theory. I think the solution is boards need to make a strong, analytical
commitment to performance. This would not only be in aid of succession,
but would also improve director and board performance year-over-year. I
must acknowledge, though, that in my years of board experience, I’ve not
personally participated in such a rigorous individual director evaluation.
David W. Anderson Besides age, one alternative commonly used by
boards to create turnover is a tenure limit. Is there a downside to this, other
than the potential of removing some capable directors?
William Dimma Yes, I think tenure limits change the power dynamics of a
board with management. I want the board to be a longer-term entity than
management, so if you have tenure limits for directors, you would need a
shorter tenure limit for the CEO! So I would prefer an age limit for directors
over tenure. As people are living longer with more capability, I think 80 could
be the mandated retirement age. Of course if the tenure limit was long
David W. Anderson You’ve served on a hundred boards. Why do you care
about corporate governance and board service?
William Dimma I believe in the free enterprise system. First-class corporate
governance clearly makes a difference in enhancing the viability of companies
and our economic system.
David W. Anderson You’ve also had several notable successes as president,
chief executive and dean. From both your director and executive experi-
ences, what can chairs do well that really makes a difference?
William Dimma Most importantly, effective chairs ensure their boards make
good decisions. To do that, a chair has to help the board think though matters
carefully. The best decisions, particularly the tough ones, are not arrived at by
chance; they come from a rigorous decision-making process. This is where
chairs ought to make their greatest contribution.
David W. Anderson What qualities do you see in chairs who help their boards
make those good decisions?
William Dimma I think chairs need five balanced qualities to do this well: 1. An
ability to think strategically, using discipline to stay above the day-to-day
running of the business and the endless swirl of information; 2. A genuine
interest in listening to others while still moving discussion along. If a chair
tries to dominate the discussion, the board is in trouble. All great chairs are
good listeners; 3. The disposition to work well with others—fellow directors
and the CEO—tempered with a tolerance for healthy tension. The optimal
relationship between the chair and CEO is neither adversarial nor so amicable
that disagreements are buried; 4. Prior director experience—exposure to other
boards is key in the learning process—and industry experience for depth of
understanding, while remaining open to new thinking. The chair needs the
experiential credibility and wherewithal to cope with governance and busi-
ness complexities, in order to lead the board as an equal in problem-solving
with the CEO; 5. A certain gravitas in self-presentation without being self-
important and unapproachable. A chair needs a respectable comportment to
carry the burden of putting crucial issues on the table.
David W. Anderson Given the unique role and influence of a chair, a
board can find itself in considerable difficulty if the chair is ill suited or under-
performing. What can a board do when the chair is the problem?
William Dimma One of the most challenging decisions a board can face is what
to do in this situation; the worst thing a board can do is ignore it. While not
wanting to move prematurely, once the board has come to the view the current
chair isn’t working out, I recommend moving quickly and diplomatically.
If any director thinks there is a problem with the chair, the governance
committee should hear about it and discuss the matter. Caught early, some
problems can be fixed with thoughtful feedback. If it’s serious matter, a
“woodshed experience” between the governance committee chair—or lead
director—and board chair can make sense, but frankly, the likelihood of
this working is slim. The practical solution may be for the governance
committee to not let the chair stand at the next AGM in order to remove
this director from the board.
I think underperforming chairs were more common in the old days.
Nonetheless, ensuring the board is well served by an effective chair is so
important that I think the governance committee chair should not be the
board chair—to provide independent leadership to the governance committee
to ensure the interests of the board itself are properly served.
David W. Anderson You’ve argued for a strong and purposeful role for the
governance committee in providing feedback and guiding the board’s
selection process for the board chair. How should a board chair be selected?
William Dimma The governance function of the board is crucial and, as
I’ve argued, influenced strongly by the quality of the chair. Consequently, the
board should view chair succession not unlike CEO succession: it should be
orderly and uneventful and works best with several years lead time, a clear
role description and several strong candidates.
If any director thinks there is a problem with the chair, the governance committee should hear about it and discuss the matter. Caught early, some problems can be fixed with thoughtful feedback
The Director’s Chair
www.listedmag.com Spring 2011\\Listed 39
William Dimma Two major developments in Canadian governance structures
are bolstering board independence and thus contributing to the rise in board
power and providing greater protections for shareholders: the separation of
chair and CEO roles, and the appointment of a majority of outside directors.
Despite this, the fact that shareowners want to play an even greater role in exec-
utive compensation and director nomination suggests to me that shareowners
do not as yet see boards as neutral, effective intermediaries trusted to adjudicate
the corporations interests without undue bias toward management. And
in truth, cutting past the PR, most boards are more with management than
shareowners when there is a difference of opinion.
Despite this recent realignment of power, the legacy and the enduring factors
that serve to bind directors to management continue to constrain the board’s
credibility with shareowners.
David W. Anderson What then is the proper role of a board vis-à-vis share-
owners and management?
William Dimma The proper role for the board is to act as a balanced interme-
diary; a kind of arbitrator between the goals and aspiration of shareowners
and management. Directors have to operate in the best interests of the corpora-
tion; within that, there are issues where directors may legitimately side more
with management or shareowners. Ninety percent of the time, their views
will be coincident. However, there are three issues on which shareowner and
management views are likely to differ: executive continuity and succession,
executive pay and director appointment.
It seems to me there are two options in resolving such differences: either
the board comes to be regarded as scrupulously neutral, deciding issues
objectively, or shareowners step in to play a more active role.
It looks like shareowners will play a more active role regardless, but I’m
skeptical as to how far it should go. I’d rather directors play the scrupulous
intermediary role than shareowners getting in over their heads—particularly
as there’s such a broad spectrum of shareowners, some of whom may be disposed
to meddle. If empowered shareowners, who nonetheless may be ill informed
and lack objectivity, restructure boards and rewrite governance, this may lead
to an incompatibility of boards with management. It would be sadly ironic if
shareowners came in and upset the applecart.
David W. Anderson Looking more broadly at influences on corporate
governance in Canada, is moving from our current system of decentral-
ized market regulation to a single market regulator a good idea?
William Dimma Yes, conceptually, it’s ridiculous that Canada doesn’t have
a single regulator. It’s a classic example of why a Swiss president once said
‘We don’t want to be another Canada.’ It’s an international embarrassment
that we can’t find our way to a single regulator.
David W. Anderson, MBA, PhD, ICD.D is president of The
Anderson Governance Group in Toronto, an independent
advisory firm dedicated to assisting boards and management
teams enhance leadership performance. He advises directors,
executives, investors and regulators based on his international
research and practice. E-mail: [email protected].
Web: www.taggra.com.
enough—say 20 years—then it’s largely academic. Clearly, the focus should
be on performance.
David W. Anderson Boards have greatly reduced their size over the last
two decades. How has this affected performance?
William Dimma Boards have gone from too big to now possibly too small.
Some bank boards used to have upwards of 60 directors and other corpora-
tions often had two dozen or more. Now a board of 15 directors is considered
close to unwieldy. The optimum is often said to be seven to nine. However,
I think the best board size for complex businesses is likely larger, given how
much work is required of directors. To divide up and parcel out the work
of the board into effective committees, you need enough directors to avoid
asking them to serve on several committees.
David W. Anderson Clearly, directors are putting more effort into compos-
ing boards in order to provide better governance. The payoff is to be found
in working more productively with management. How do boards and CEOs
best work with each other to get the most value for the company?
William Dimma I’ve seen the answer to that question change over my years
as a director. The nature of the relationship between the CEO and board has
evolved, most dramatically in the last decade, as your own research has
documented. In an earlier time, the CEO was clearly in charge; by conven-
tion, the board was composed and served largely at the discretion of the
CEO. Now I see the relationship as one of equals—a remarkable shift in
power—and out of this we see better resolutions than we had before. Certainly
directors have to be careful not to be seen as siding with management by default,
but neither should they be disposed to hostility.
David W. Anderson Do you think the shift in power has gone beyond equal-
ity in favour of the board, such that the CEO clearly reports to the board?
William Dimma Yes, it could be said that the CEO does report through the
chair to the board, but it’s not the same reporting relationship as between a
vice-president and president. It’s a more arm’s length reporting relationship.
To function effectively, the CEO has to retain latitude to execute operationally
once the broad strategy is agreed to by the board. While it’s different from the
typical chain of command, the CEO does serve at the board’s discretion, and
occasionally we see that power acted upon.
More today than ever before I see boards in charge, but there are still more
boards that need to be in charge in a nuanced way—not to the point of dominat-
ing the CEO. Certainly, the character of the enterprise should be influenced by
the chair and board. And in practical terms, I think it is crucial the CEO and
chair meet frequently to discuss the right issues—those where the future of
the enterprise is on the line. A CEO who doesn’t work closely with the board
and board chair is setting him or herself up for failure.
David W. Anderson There’s an interesting parallel here—boards that do
not engage meaningfully with their shareowners have begun to find them-
selves judged harshly. This puts the board squarely between shareowners
and management and under great scrutiny. How has this come about?
William Dimma Traditionally, directors have been closely associated with
management for several valid reasons: directors come from same gene pool—
meaning directors are typically business people coming from management
roles and thus are bound to identify with management interests; directors
of necessity work closely with management to perform their duties, forming
social bonds; and directors are highly dependent upon management’s knowl-
edge, time and exercise of power over resources. Taken together, these advantages
held by management over directors mean it is hard for directors to function
independently. Finally, directors see the business reality alongside manage-
ment—and more closely than shareowners.
David W. Anderson Has the drive toward greater director independence
given shareowners more confidence that boards can withstand these forces
and better represent shareowners?
The fact that shareowners want an even greater role in executive compensation and director nomination suggests to me that shareowners do not as yet see boards as neutral, objective intermediaries
Ready to drop the company’s big bucks on an accredited, English-language director certifi cation program? Between the ICD’s Directors Education Program and the Directors College at DeGroote School of Business, it’s a fi eld of two. Both have the same goal, each gets you there a different way
By Paul Brent
Director Education SPECIAL REPORT
DIRECTORSHIP
www.listedmag.com Spring 2011\\Listed 41
But there is no shortage of satisfi ed customers. Rob Sobey, president of east-coast
pharmacy chain Lawtons Drugs, a member of the Sobey-family controlled
Empire Co., and a 2009 ICD graduate, is a case in point. Despite having ample
board experience, he says the training was well worth his time. “It matured me
as a director,” says Sobey. “It gave me another way of looking at boardroom
challenges, boardroom topics and aff orded me a little bit more objectivity.”
Andrew MacDougall, a consultant with recruiter Spencer Stuart & Associates
in Toronto, says director education and certifi cation is increasingly valued
by corporate Canada and it makes its graduates that much more marketable.
But he is reluctant to make a connection between direction education and a seat
at the boardroom table. “I think people who view it as an education, rather than
as a ticket to a great board will be the ones that have the most satisfaction from
doing this.”
When it comes to that education, make no mistake—on
the surface the two English-language programs might seem
similar in duration and expense, but there is much to compare
and contrast.
Th e Institute of Corporate Directors’ Directors Education Program is the
larger of the two. Created for the ICD by the Rotman School of Management
and taught by business faculty across Canada, it’s also the hands-down
winner if you’re choosing a program by its name recognition, ubiquity or
the number of graduates it has produced in the past eight years.
By now it’s well understood that director education programs in
Canada, like most of their counterparts stateside, were born
out of the corporate ashes of Enron. Th e infamous 2001 U.S.
corporate accounting fraud, which played a major role in the
creation of the Sarbanes-Oxley regulations, also put a spotlight on the issues
of director conduct and, ultimately, director liability. Before Enron, it was
hard to make a case that companies should spend tens of thousands to
educate corporate directors who, prior thinking went, already had the
necessary education, background and experience to do their jobs; aft er
Enron, not so much.
But a lot has happened with director education in the decade since, not
to mention the world of boards and corporate governance. Th at initial value
proposition, which sparked the creation within a year of Enron of both existing
accredited Canadian English-language directors programs—the Institute of
Corporate Directors’ Directors Education Program and the DeGroote Directors
College’s Chartered Directors Program—still holds and is still paramount. But
both these programs, as well as the French-language Collège des administrateurs
de sociétés (CAS) from Laval University, now also attract a steady stream of new
applicants seeking a wider range of benefi ts and applications—from a path
to more and better directorships and added depth on an executive résumé, to
providing an entry point for women to become directors and giving public
companies a way to demonstrate a commitment to good governance.
Whether those expectations are always met is an important issue to consider.
42 Listed//Spring 2011 www.listedmag.com
who has also taught part of the ICD’s mergers and acquisitions module
since the program’s inception. “Th e way the course is delivered, it is
done in a highly interactive fashion utilizing case studies, class exercises
and breakouts.”
Magidson says students value the expertise and experience of faculty and
industry presenters and the “experience in the room,” which stems from the
collected brainpower of 30 to 35 students who are either directors or on the
fast track to the boardroom. “We require [applicants to have] career experi-
ence and board experience, profi t or not for profi t, so that when you come
into the classroom, you have got something to contribute,” says Magidson
(DeGroote’s admission rules, by comparison, say previous board experience
is strongly recommended; without it, senior business experience is mandatory).
“We think that people who are going to take the time to take this course
and pay the tuition want to be at a level where they are being enriched by
their classmates as opposed to being brought down.” Th e ICD tries to balance
classes to refl ect an array of diff erent skill sets and career experience and can
aff ord to be picky because its program is oversubscribed.
To date, the ICD course has produced about 2,000 graduates, or fi ve
times the number of its rivals. Early attendees included the likes of Claude
Lamoureux, at the time president and CEO of the Ontario Teachers’
Pension Plan (since retired), and Susan Wolburgh Jenah, then vice-chair of
the Ontario Securities Commission, now an ICD board member. A number
of high-profi le politicians have also done the program, including former
Newfoundland Premier Brian Tobin.
ICD’s dominance in terms of grads is a function of an aggressive schedule
of courses, extensive marketing and the national reach that comes with partner-
ing with local universities in Toronto, Montreal, Calgary, Edmonton and
Vancouver. Whether it off ers the best director training or not, something
that is up for debate, the ICD-run program is perceived by much of corporate
Canada as the top program.
Publicly at least, the ICD doesn’t make that claim, and perhaps it doesn’t
have to. “Th e core curriculum in a way is timeless, it is about best practices
and a key part of the educational process is not what you can read in a book,”
says Stan Magidson, the current president of the ICD and a corporate lawyer
SPECIAL REPORT Director Education
Ph
oto
gra
ph
Dan
Cal
lis
Rob Sobey, president of Lawtons Drugs (ICD 2009): “It matured me as a director”
www.listedmag.com Spring 2011\\Listed 43
act in the best interests of the corporation as a whole without favouring any
one stakeholder group. “Th e ICD really, in their orientation, really pitch that
the directors are there to represent the shareholders, which is much of an
American concept.”
Because of that philosophical diff erence, DeGroote’s director course is
described by many, including some with the ICD, as being a course geared
toward directors in the nonprofi t sector. Bart dislikes being pigeonholed
as such and notes that only about 20% of graduates come from the non-
profi t sector.
Likening the rivalry between his course and the ICD to a “David and
Goliath” struggle, he immodestly says that the only reason the DeGroote
course is still around despite its many inherent disadvantages is because of
its quality. “We are kind of regarded as the gold standard in director
education and certifi cation,” he says. “Everything that we do has been the
pacesetter in director education in this country, but I’m happy to say that
the ICD is catching up with us.”
Besides the all-stakeholder approach the DeGroote program takes, Bart
says his course takes more of corporate social responsibility focus while
the ICD zeroes in on M&A situations in a way that the Hamilton-based
program does not.
While Bart likes to play up the programs’ diff erences, he does allow that
the foundational elements are the same. “We are both the same when it
comes to the regulatory, technical and legal stuff . No good director education
program can avoid having any discussion on that otherwise you would be
negligent and derelict in your education process.”
Some of what the ICD hopes to teach students can’t be learned through
straight studying, Magidson asserts. “A large part of being an eff ective
director is understanding how to communicate in the boardroom. You can
be the smartest person in the room but if you don’t know how to make
your point and get buy-in by your board members it is a waste of talent.” A
lot of class time is devoted to the behavioural aspects of being a director
and there are a series of exercises designed to get students comfortable in
boardroom settings.
Th e Directors College at the DeGroote School of Business is run out of
Hamilton, Ont.’s McMaster University by Christopher Bart, the College’s
principal and lead professor. Bart worked with the ICD in its early days
developing course material before breaking off and starting up DeGroote’s
program. Besides its somewhat out-of-the-way, off -campus classroom location
down the highway in Niagara-on-the-Lake, the DeGroote program is diff er-
entiated by the fact that it is a university-accredited development program that
leads to a university designation rather than its rival’s ICD.D designation.
(Laval’s Collège des administrateurs de sociétés has a reciprocal agreement
with DeGroote and has a DeGroote-designed fi nal exam.)
Th e diff erences go beyond that. To an outsider, the most obvious is that
the DeGroote program is residence-based, with modules taking place over a
Th ursday to Saturday span at a self-contained conference centre. But principal
Bart stresses a number of others as well—taking a few good-natured digs at
the ICD/Rotman program in the process. “We are very stakeholder oriented
in our approach,” which he says was validated by a recent Supreme Court
of Canada decision on fi duciary duty that stated directors owe their duty to
Director Education SPECIAL REPORT
HOW THE PROGRAMS MEASURE UP
Directors Education Program Chartered Directors Program Collège des administrateurs de sociétés
Administration Institute of Corporate Directors and DeGroote Directors College and Conference Laval University Rotman School of Business Board of Canada
URL www.icd.ca www.thedirectorscollege.com www.cas.ulaval.ca/cms/cas
Launch Date 2003 2003 2005
Location Business schools in Toronto, Montreal White Oaks Conference Centre, Niagara-on- Caisse de dépôt et placement du Québec Calgary, Edmonton and Vancouver the Lake, Ont. offi ces in Quebec City and Montreal
Format Four, three-day modules spaced over seven Five modules (2¼ days each). Participants Participants must register for Module 1 to eight months. Modules designed to can register for each module separately fi rst. Module 2, 3, 4, may be taken in any be completed sequentially, so participants and not necessarily in chronological order. order. Participants must take Modules 1, benefi t from learning and growing with the Participants must take Modules 1, 2, 3 2, 3 and 4 before they can progress to same group, knowledge builds module to and 4 before they can progress to Module 5 Module 5 module
Cost $16,000 $20,600 $16,250 (fee includes tuition, study materials, meals) (fee includes tuition, study materials, meals, ($3,250 per module; fee includes tuition, accommodation) study materials, meals)
Class Size 30-35 20-30 25
Faculty Business school faculty, industry Faculty from DeGroote, industry practi- Faculty from Laval, industry practitioners practitioners and directors tioners and directors and directors
No. of Graduates 2,000 400 500
$
$
Which is better for you? John Ryan, chief executive of the
Canadian Society of Immigration Consultants and a current
director on both a nonprofi t and for-profi t board, off ers a
unique perspective. He has taken both the ICD and DeGroote
director’s courses and the French-language course off ered by Laval. Of ICD
and DeGroote, he says both have their strengths and weaknesses and goes so
far as to recommend that directors on his board take both. “To say anything
less would be diminishing one or the other of my accreditations,” he says.
Not every company board, or director for that matter, would be willing
to invest the time and money to send directors to both major programs,
Ryan acknowledges. In those cases, organizations should carry out “a needs
assessment of their own needs and I think they need to look critically at the
two programs to decide which would best fi t their personal needs and the
culture of their board.”
Ryan scoff s at the notion that the DeGroote program is more targeted at
nonprofi t boards while the ICD course is better suited for corporate types.
At the same time, he stresses that there is a pedagogical diff erence in the
way the two programs approach director training. “Th e ICD is largely based
on case studies, with a lot of small group interaction whereas the [DeGroote
program] is much more a classroom exchange, a large group exchange
based on the case studies and the problems that are put in front of us.”
Th e other major diff erence, Ryan says, is the live board simulation that
makes up the fi ft h and fi nale module. “It really put us in a case simulation
and actually [did], in many respects, turn out to be real.”
In what Bart describes as DeGroote’s “fl agship module,” the boardroom
simulation challenges students (or delegates, in DeGroote parlance) to deal
with a fi ctitious company (dubbed “Hollister”) based upon the documentation
drawn from a real-life company. In a typical class of 24 students, eight will be
around the boardroom table taking part in the simulation while the other 16
are watching their colleagues perform; both groups of students (and DeGroote
faculty) all give their debrief aft er each one of the six or more sessions.
As part of the simulation, students receive a document package that contains
SPECIAL REPORT Director Education
44 Listed//Spring 2011 www.listedmag.com
IT ALL COUNTS Every type of company effort to orient and educate directors should be encouraged—and disclosed Director education doesn’t start or stop with the full-fl edged director’s certifi cationprograms offered by the Institute of Corporate Directors and the DeGroote Directors College. Nor is the topic strictly an internal company concern.
The Canadian Securities Administrators (CSA), the group comprised of securities regulators from the country’s provinces and territories, expects companies to disclose any and all activities they undertake that contribute to director orientation, development and continuing education. Actions taken by companies in the area of director education that the CSA expects to see disclosed include:
• Creation of director handbooks and/or Intranet sites• Orientation meetings with management• Presentations by both internal and external experts• Strategy sessions• Providing educational reading material• Having directors attend committee meetings of which they are not members• Site tours• Self-education through online learning• External course offerings (including ICD and Directors College programs)• Membership in professional associations.
—P.B.
Directors College principal Christopher Bart: “David” to ICD’s “Goliath?”
UP FOR THE TEST? If you like grueling fi nal exams, you’ll love DeGroote. It gives you bragging rights The rivalry between the Institute of Corporate Directors’ Directors Education Program and DeGroote’s Directors College extends all the way to their fi nal exams, which determine a student pass or failure.
In the case of the ICD, the final test includes a 50-question, 60-minute written exam as well as a two-hour oral exam that is a combination of a boardroom simulation comprising four students and two examiners and a one-on-one interview with examiners.
The DeGroote fi nal exam, which is also utilized by Laval, is more gruelling and comprehensive. About 5% of test takers, or one or two students in every class, fail. DeGroote principal Christopher Bart, who is not shy about describing the rivalry between the two programs, recalls that when the ICD decided to change its program to include a fi nal exam, he was asked to allow the rival course to test his graduates. “I said, ‘What, are you nuts?’”
According to Bart, ICD then contacted DeGroote grads directly and asked them to take their newly designed test. “They went and did an end run on me,” he says. “The guys that they picked who wrote it called me up. I yelled at them and said, ‘Are you crazy?’ They said, ‘No, it’s great, we kicked their asses.’”
Executive and board member John Ryan, who has taken both programs, agrees that the DeGroote/Laval fi nal is tougher. “Having heard the stories, I dug in and it took me six or so weeks to prepare for the Directors College test. And even after that six-week prepara-tion, I walked out unsure whether or not I even passed. It was a meat grinder.” —P.B.
minutes of three committee meetings (audit, HR and compensation), minutes
of board meetings and a corporate retreat. With the participation of faculty who
play key “company” roles, students go through agenda items “for the purposes
of seeing how the delegates respond to the material as well as to the behaviour
of the board simulation actors.”
Bart describes the board simulation module as “a transformative
experience. Th ey come in acting and behaving one way, and they leave com-
pletely diff erent.”
As for the ICD experience? Sobey divides it into three parts—one third
he already knew, another third reinforced and framed up general concepts
such as liability, legalities and other director’s responsibilities, and one third
was material he had never encountered before. “I was looking to formally
shore up my understanding of what it truly took to be a good director in Canada,”
Sobey says. “I thought it was a good course, good experience, met some great
people and, of course, that is always the benefi t of executive education—meeting
your classmates.”
Th e “who you meet” factor is a driving force behind the thinking that
directors school helps women open doors to the boardroom. But the results,
even anecdotally, are inconclusive. “Is director education the ticket?” asks
Spencer Stuart’s MacDougall. “Possibly, if you are fortunate enough to
have been in a class which has somebody who is on a board and they are
impressed. Th at may help you get that fi rst board seat if you are a woman,
or a man for that matter.”
Th at was Susan Wolburgh Jenah’s experience. “Having been in the course is
what I guess drew me to the attention of the people at the ICD on the board at
the time and that is why they approached me to be on the ICD board.”
TransCanada Corp. executive vice-president Sarah Raiss, a former graduate
who is now the ICD’s Calgary chapter president and who also sits on two
corporate boards (Shoppers Drug Mart Corp. and the Business Development
Bank of Canada), prefers to view director education as an end in itself rather
than path to the boardroom. “It is a phenomenal set of tools, learning from
the course materials and from very seasoned people in the class,” she says. “For
me it is more a bag of tools than something that directly helps you get on a
board per se.”
Th e “tool kit” notion is especially apt when you consider that graduates who
want to keep their certifi cation active in the future must undertake a minimum
of 14 (ICD) or 15 (DeGroote) hours of qualifi ed continuing professional
development activities annually. To this end, both programs off er a fairly
extensive range of courses, seminars, roundtables and other events that qualify
for partial or full continuing education credit. Some sessions are complete
mini-modules in subspecialties like fi nancial literacy or nonprofi t governance
essentials and so on. In some cases, sanctioned alumni social events qualify for
partial credit, which also aff ords graduates the opportunity to rekindle connec-
tions made with fellow alumni from their graduating class.
Where you go with it from there is up to you. In some cases, such as with
Rob Sobey, things happen fast. Earlier this year, a little more than the year
aft er completing the ICD course, he was named to the board of DHX Media
Ltd., his fi rst paid director position. Sobey says his primary connection to the
position was a personal one with an executive at the company. But when it came
to his ICD designation, he adds: “I don’t think it hurt.”
Paul Brent is a veteran freelance business reporter in Toronto.
www.listedmag.com Spring 2011\\Listed 45
Director Education SPECIAL REPORT
When did transparency get so grey?
When it comes to corporate governance, every decision matters.
That’s why at the Canadian Institute of Chartered Accountants (CICA), we’re leading
the way in developing best practices, processes and business solutions critical to corporate
governance. From accounting, to fi nance, to risk management and strategy, Canada’s
CAs have what it takes to help you make every decision a better one.
www.listedmag.com Spring 2011\\Listed 47
Handbook
T hree years ago, Stephen Griggs, executive director of the Canadian
Coalition of Good Governance, began requesting meetings with
directors who hold key roles on the boards of some of Canada’s
largest publicly traded businesses.
The action followed a process already established in Europe and the U.K.,
and just getting started in the U.S., in which boards and major shareholders
meet formally—bridging a classic divide—to discuss key issues in corporate
governance. “We want boards to recognize that shareholder engagement
is a key board function,” says Griggs. “We believe it’s important that share-
holders have the ability to have regular, constructive engagement meetings
with the boards—not with management—to talk about governance issues.”
The CCGG started with the Big Five banks. “Logistically, that was easy,” he
says. From there, it quickly expanded its effort to include boards from another
handful of large companies.
One of them was Potash Corp. Mary Mogford, a veteran Canadian corporate
director and governance committee chair on the Potash board, remembers it
well. “There was a lot of talk in corporate Canada when these meetings were
set,” Mogford says. “People were asking ‘What does CCGG want?’ What are
they looking for?’ I must say, our experience with CCGG—and I’ve also heard
this from other company boards—was quite positive. The meeting started on
say-on-pay but it was much broader than that.”
Fast-forward two years, and the CCGG—an organization representing
45 Canadian institutional shareholders who cumulatively manage over $1.5
trillion in company holdings—has met with directors from about 50
companies. This year, it expects that number to double. For many directors,
the arrival of that first formal meeting request still triggers the same questions
Mogford mentions—including concerns about selective disclosure and the
risk that it might lead to undue shareholder influence over business operations.
But on the whole, the process is becoming more commonly recognized—if
not totally accepted—as a part of the new governance landscape.
Even for companies not on the CCGG’s immediate radar, the process points
to a growing expectation on the part of shareholders that they be able to
communicate directly with boards. It’s a process that Mogford says, under
certain circumstances (such as the loss of investors’ confidence in management),
Look who’s talkingUntil recently, boards and shareholders rarely met behind closed doors. But that trend is changing—and in the process, both groups are learning that direct dialogue can be a valuable step to better governanceBy Robert Thompson
48 Listed//Spring 2011 www.listedmag.com
Handbook
may be appropriate. However, Mogford stresses that she and Potash still
believe that management should be the primary channel for shareholder
contact and that the fl ow of shareholder feedback from management to the
board is essential in that loop. “It’s important for a board to understand and
keep abreast of their company’s shareholder base,” she says.
Th e CCGG’s meetings typically include a handful of key board members—
in Potash’s case, for example, it was limited to the board chair, compensation
committee chair and Mogford, with Griggs and two other CCGG board
members on the other side. An agenda is laid out in advance and meetings
oft en start out quite scripted, sometimes even frosty. But in most cases, before
they’re done, board members grow comfortable discussing and fi elding direct
questions about their approach to executive compensation, corporate democracy
and board governance.
“Th e parameters around what we talk about are very diff erent than manage-
ment meetings,” says Wayne Kozun, senior vice-president, public equities
for the Ontario Teachers’ Pension Plan, a board member with the CCGG.
“With management it is more about execution and how they are doing versus
their business plan. When meeting with directors we have higher-level discus-
sions than what we have with management.”
At this stage, it would be a stretch to say all directors are happy about this
process. One senior corporate director and former compensation chair, who
spoke on the condition he not be identifi ed, says he sought legal advice aft er
being approached by a shareholders group. Th eir message: listen, but stay
quiet. “Th at’s what our lawyers told me,” he says. “But I wonder how far this
is going to go. Are we going to talk about the concept of risk management
tolerance, or do we end up talking about operations of the company?”
Both Griggs and Mogford insist that’s not the point. “As a general rule, the
board should not be doing management’s job,” says Mogford. But those
concerns perist. Another well-known director, Dee Parkison-Marcoux, the
former president of Gulf’s heavy oil division and a current director with SNC-
Lavalin and Sherritt International, while in favor of more open discussions
with shareholders, also wonders where meetings with organizations like the
CCGG will lead. “We can push it too far,” she says. “Yes, you’re accountable to
your shareholders, but having intermediaries creating checklists is moderately
off ensive. We need to make shareholder meetings more open and relaxed
with greater dialogue without being negative.”
Directors seeking more information about the CCGG’s objectives and the
criteria it uses to select the companies it approaches, can fi nd a succinct
summary of its philosophy and approach to shareholder engagement on
its website.
Teachers’ Kozun, who has attended several meetings with shareholders
in the last three years on behalf of the CCGG, notes that a lot of research is
done ahead of time. “We oft en have analysts do detailed reviews of how a
company’s compensation structure works and that way we can be clear on
what we like and dislike going in,” he says. “Oft en times companies don’t give
a clear link between compensation strategy and how they are paying people.
We want clarity on that.”
Kozun admits some directors have been reluctant to talk for fear of
violating disclosure rules, but he reiterates the meetings are about corporate
governance and not operational in nature. “Sometimes the directors don’t
have to tell you that much—sometimes they just need to listen to how we
feel,” he says.
As for the notion that selective disclosure is an issue for some directors,
Griggs calls that “wimpy” legal advice. “From a pure legal perspective there’s
no reason directors can’t talk to shareholders,” he says. “Directors should be
suffi ciently knowledgeable about the status of matters inside the company
that they can speak for the board. Th ere’s no reason they should be muzzled
over concerns about selective disclosure.”
Another common director concern raised by Parkinson-Marcoux involves
the worry that having meetings with only some shareholders creates a two-
tiered system of ownership. Th e worry, she says, is that those groups with access
will have greater infl uence on corporate policy, while other, typically smaller
shareholders, will lack a voice in the debate. “Th e institutional directors see
themselves as a separate set of shareholders and that division is very hard for
a director to manage because under corporate law we can’t make that distinc-
tion,” she says. “So the demands to have chats are a concern because are they
then getting information that is exclusive to them because they were bullish
enough to ask?”
Griggs says this should not stand in the way of meetings. “If you are a large
shareholder you can meet with the CEO of basically any company,” he says.
“We have always encouraged boards to engage and speak out to all share-
holders. But to say boards shouldn’t meet with their large shareholders is a
fallacious argument.”
At the same time, Griggs says the CCGG realizes that directors can’t meet
with all shareholders. To this end, he says the onus is on boards to “develop
policies to be able to reach all of their shareholders in an appropriate way.”
Th e CCGG shares the information it gathers in a report to its members.
Th e information may be used to shape CCGG recommendations to its members
on how they should vote on say-on-pay on other governance issues at annual
meetings. Th e companies also get a chance to see and comment on the report
before it goes to CCGG members. Th e CCGG doesn’t make the results public,
nor does it name the specifi c companies it meets with.
However, among the companies that Listed has learned the CCGG
approached for a meeting in 2011, is Teck Resources. Long-time director
Warren Seyff ert, chair of the company’s corporate governance committee,
says Teck’s board got an invitation in December. While he has no problem
with a meeting, he shares the concern that has been raised by other directors—
at what point do meetings with shareholders’ groups end in discussion not about
governance, but about operations. “I don’t know where that line is, but I have
a fuzzy idea,” he says. “My take is that discussions should be more about the
process of something like risk management and not what risks a company
is taking—that’s more on the operational side.”
Each time Griggs hears this concern from a board or a director, he repeats
his message: the CCGG isn’t looking to push beyond governance issues. He
says he expects these concerns to diminish in a few years time, once the
CCGG has met with many more boards across Canada. “By their very nature
there is a lot of heavy lift ing going on in the initial meetings,” he says.
Kozun says one area where less progress has been made is with Quebec-
based companies, something that the CCGG soon hopes to correct. One
reason for the delay is the need to overcome strong ideological diff erences.
Many Quebec companies have multiple-voting share structures, for example,
something the CCGG is opposed to. Th e province has also railed against a
national securities regulator, something the CCGG supports. Nevertheless,
Kozun says he expects more inroads to be made in Quebec in the next year.
“Th ere is a pendulum eff ect going on here,” says Griggs. “Shareholders are
zeroing in on boards and wanting to build relationships.” And directors,
for their part, are responding.
Robert Th ompson is a freelance writer in Toronto.
Director Mary Mogford: dialogue appropriate at certain times
www.listedmag.com Spring 2011\\Listed 49
Handbook
This time last year, talk was all about the new, original Apple iPad. Would it sell? Would it be a
success? Would it be a useful professional device? You won’t find many people who’ll admit to
it now, but back then, a lot of folks weren’t sure.
What a difference a year—and sales of 14.8 million units through the end of 2010—makes.
If last year was a time for getting used to the concept of a Wi-Fi-enabled, notebook-sized, digital touch-
screen as a primary professional appendage, 2011 is shaping up as the year that it gets commonplace. From
Apple to RIM and Motorola to Samsung, the devices are everywhere. Here’s a quick rundown.
iPad 2Apple’s iPad is, of course, the market-leading tablet, with 65% of the Fortune 100 using it internally. The
release of the iPad 2—which sold out almost immediately after launch in the U.S.—should reinforce
that. The new version is one-third slimmer and 15% lighter, it comes with two cameras (the original had
none), an upgraded processor, expanded multimedia capabilities and an all-new operating system. If
Apple gets any resistance from big readers in the C-suite, it might have to do with Apple’s tight-fisted
approach to content sales and sharing. Earlier this year, Apple banned Sony’s eReader app, which
had allowed customers to buy books directly from Sony’s ebook store without going through its
iTunes. Apple has also informed newspaper and magazine publishers that it will soon terminate apps
not offering subscriptions through iTunes. iPad 2: $TBA (U.S. price: US$499)
Samsung Galaxy TabletWith its 7-inch, 600-x-1024 pixel display, the Galaxy Tablet fits nicely in the hand, and in a reason-
ably sized jacket pocket. Based on version 2.2 of Google’s open-platform Android operating system,
it features built-in synchronization with Google services (including calendar and contacts) along
with a “Reader Hub” application that offers paid access to hundreds of newspapers and magazines.
The built-in Kobo Reader also offers online book purchases. Galaxy Tab: $649.99
Motorola XoomAnnounced at this year’s Consumer Electronics Show, Motorola’s Xoom is a 10-inch tablet running Android
3.0 (Honeycomb). This is the first version of Android tailored specifically for tablets. It features a dual-core
processor for extra power, two cameras and a 120-x-800 resolution screen. A real Cadillac among tablets, the
Xoom’s Canadian launch was said to be imminent at press time. Xoom: US$799
Dell StreakDell wowed the world with its Streak 5, a device with a 5-inch display that didn’t know whether it was a
phone or a tablet (it did both). The Streak 7 has less of an identity crisis, but has received poor reviews
thanks to short battery life, a chunky 600-x-480 display (the lowest resolution of its peers) and the inability
to charge via USB (it needs wall power). Dell Streak 5: $549; Dell Streak 7: $TBA
RIM PlayBookCanadians will be watching especially closely when the long-awaited RIM PlayBook finally hits the market.
At press time, the exact date (likely April) and price were still unknown. Specs-wise, expect two cameras, a
dual-core processor, and a 7-inch, 1024-x-600 display. Running RIM’s own operating system, the PlayBook
will be able to siphon content from BlackBerry smartphones using Bluetooth tethering, giving users a bigger
display and more power to process their BlackBerry e-mails and documents. PlayBook: $TBA
Flat is where it’s atExpect to see a lot more tablet computers around the boardroom in 2011By Danny Bradbury
Taking control, taking commandRelax. Being a good boss isn’t supposed to be easy
Good bosses and successful leaders come in all
shapes and sizes, but they also tend to have certain
things in common. Among them: the desire
for self-improvement and the ability to cope with
and succeed in complex situations.
However, what many people who struggle and
fail with the same challenges may not realize, is that
most good bosses weren’t born with superior
coping skills. Instead, they’ve learned how to take
control of themselves and their situations, and
moved forward. The lesson is that if you can master
the same control over your circumstances, you,
too, can be a good boss and make a difference
as a leader.
That, in essence, is the jumping off point for
Being the Boss, a great new book that has the
potential to become an essential part of many an
early- and mid-career manager’s developmental
tool kit. Well-written, engaging and virtually
glib-free, the book’s aim is to teach you how to gain
that all-important control—using an approach that
authors Linda A. Hill, the Wallace Brett Donham
Professor of Business Administration at Harvard
Business School, and Kent Lineback, a writer and
veteran executive and manager, call the three
imperatives: managing yourself, managing your
network, managing your team.
Their objective is to help you build a mental
framework “that you can lay over the chaos” to
organize it and gain control. For that, they write,
“you need a way of thinking about your work and, in
particular, a way of thinking about what you must do
to influence your people to make them productive
and achieve the results you need.”
Being able to influence people is at the heart of
being a good boss, say Hill and Lineback. And they
use an instructive mix of anecdotes, self-assessment
tests and a chapter-by-chapter series of realistic
managerial scenarios encountered by a fictional pub-
lishing executive, to show how this can be achieved.
Those specific lessons and advice—which the
authors say are drawn from studies of management
practice, observing what effective managers do—
give the book its ultimate value. But the personalized
nature of the presentation—the authors have a knack
for sounding like they’re writing directly to “you”—
gives it readability and staying power.
Being The Boss
By Linda A. Hill
and Kent Lineback
Harvard Business Review Press
January 2011
The Canada Forum5-6 April 2011 • Allstream Centre, Toronto
Keynote speakers: The Hon. James Flaherty, Finance Minister of Canada, and The Hon. Dwight Duncan, Finance Minister of Ontario
Euromoney is delighted to announce that it will hold its second annual Canada Forum on 5-6 April 2011 at the Allstream Centre, Toronto. The successful launch of the 2010 Forum brought together over 350 senior level offi cers from issuers across the credit curve with domestic and foreign institutional investors. Join us in spring 2011 as we reconvene 12 months on to assess how the markets have developed since then.
For more detailed information, including the latest agenda and to apply online, please visit the website: www.euromoneyconferences.com/canada11
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Economy Ahead
www.listedmag.com Spring 2011\\Listed 51
S o the patient is off life support and taking regular exercise. At
times he can look nearly frisky. But you have to wonder about the
repeated transfusions he’s receiving, not to mention the special
diet. Is it possible that he’s not as healthy as he appears?
We’re talking about the global economy, of course. Th e latest numbers paint
a picture of a world that is emphatically back in business. All the leading indi-
cators, executive surveys and GDP data (except for a worrisome setback in the
United Kingdom) concur that things are getting better.
Just don’t look too far beneath the surface. If you do, troubling questions
emerge about whether the latest upbeat numbers mark the beginning of a
permanent return to health or are merely a fragile illusion of vigor. Consider,
for instance, the strange disconnect between the record profi ts that companies
are reporting and the high unemployment that still dogs most developed
countries. Higher profi ts usually go hand in hand with job creation, but for
some reason the link seems broken this time around.
It’s not for lack of trying. Governments have fl ooded their economies with
defi cit spending, cut interest rates and bought up bonds and other assets, all
to spur demand and get commerce moving. But results have been spotty. Th e
International Monetary Fund labels this a “two-speed recovery,” with some
countries (notably China and India) speeding ahead, and others (the UK and
the United States) dragging their feet.
Can this patchy recovery fi nd its bearings and thrive? In a typical North
American rebound, real GDP leaps ahead by more than 5% a year as the
economy speeds out of recession. Th is one is crawling forward at little more
than half that pace.
Th e biggest single problem, as a result, is jobs—or the lack thereof. In
Canada, unemployment remains stuck above 7%. In the United States, it’s a
dismal 9%. Remarkably, the unemployment rate in the former East Germany
is now lower than that in California.
With real GDP growing at 3.2% a year, far below what’s needed to make a
EconomySecond-quarter smackdown Will it be full recovery or relapse? The next three months could tell the story, with the release of some key economic data and updates on critical indicators to show the way By Ian McGugan
Ph
oto
grp
ah R
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52 Listed//Spring 2011 www.listedmag.com
Ahead Economy
dent in the unemployment rate, the jobs gap in the United States could take
years to fi ll. At its current pace, the world’s largest economy is “on track to
restore full employment circa fourth quarter 2018,” says Paul Krugman, the
Nobel laureate economist.
Slow recoveries are uncertain recoveries. As we enter the second quarter,
the data say global commerce is on the mend—but wisdom says we should
remain conscious of the risks. Here are three indicators to watch, perils that
could throw the economy back into sick bay:
Oil and the Middle East: Uprisings in Tunisia and Egypt have toppled
authoritarian leaders. Sudan is splitting into two while bombings are on the
rise in Iraq. Th e Arab world appears on the cusp of sweeping reformation—
and while that’s promising in the long run, it’s scary in the here and now.
Witness Libya and its impact on oil prices. Imagine what a challenge to
Saudi Arabia’s ruling dynasty could mean.
James Hamilton, a professor of economics at the University of California,
San Diego, recently published a paper showing the strong correlation between
surging oil prices and U.S. recessions since the end of World War II. He found
that “every recession (with one exception) was preceded by an increase in oil
prices, and every oil market disruption (with one exception) was followed
by an economic recession.” If you want a single indicator to follow over the
quarter, watch prices for oil and gasoline. Th ey may already be too high.
A Chinese slowdown: It’s the year of the rabbit in China, but it’s still too
early to tell which way it will hop. Aft er growing 10.3% in 2010, China’s
economy is too hot for comfort, with food prices up 7.2% and consumer
prices ahead 3.3%. Real estate prices have rocketed far beyond aff ordability
for most workers and wage levels are jumping in response. Guangdong, the
largest of the country’s provinces, recently increased its minimum wage by
18%-to-26%, while Beijing boosted its minimum by 21%.
As wages and prices surge, the threat of infl ation is prompting China to
tighten its monetary policy by bumping up interest rates and raising the
amount banks must hold on reserve with the central bank. Th ose eff orts
may cool the country’s economy just enough to get infl ation under control,
but the risk is rising that China’s economic managers could be forced to
take more drastic action by the second quarter. If they do, and China’s
economy falls from double-digit growth to, say, 5%-6% a year, the slowdown
will be felt in commodity and export markets around the world.
An end to free spending: Th e age of austerity is dawning. Already the UK
is cutting back sharply on its overall national spending. Other European
countries are following suit. In the U.S., spending by states and cities is plummet-
ing, Washington is vowing to hold the line on discretionary spending and
the Federal Reserve is slated to wind up its second round of quantitative
easing this summer. Expect to see more confl ict like the Wisconsin budget
battle as a result.
David Rosenberg, the economist at Gluskin Sheff in Toronto, is one of
those who believe that the winding down of stimulus is bound to reveal
the ugly reality beneath today’s artifi cially exuberant economy. “Home prices
in the U.S. are resuming a downward trend and soon we will see the house-
hold sector having to rebuild its savings without aid from the government,”
he writes. “Th e view that Washington takes care of everything will disappear
with looming austerity.”
Th e one thing that does seem sure about the second quarter is that we will
begin to see who is right—the pessimists like Rosenberg who believe a double
dip recession is all too possible, or the optimists who think the current round
of upbeat statistics are just the start of a prolonged recovery that, while slow,
will be sustained. Right now, the bulk of the data supports the latter view.
But don’t be shocked if the prognosis changes over the months ahead.
Ian McGugan is a business writer and editor in Toronto and the former editor
of MoneySense magazine. E-Mail: [email protected]
China: Annual GDP Growth
U.S. Corporate Profi ts vs. U.S. Unemployment
20
08
20
06
20
09
20
08
20
10
20
07
20
04
20
10
200
6
200
2
20
05
20
00
20
03
199
6
20
04
199
8
20
01
199
2
20
02
199
4
200
019
90
2
400 4
4
600 6
6
800 8
8
1200 12
12
1400 14
1000 10
10
0
200 2
www.listedmag.com Spring 2011\\Listed 53
Watch List Ahead
April 1Washington, DC
U.S. Employment Situation (for March)
You’ve got your defi cits, your Dow Jones, your GDP, but no economic indicator
says more about the U.S. economy than the distressingly high unemployment
rate. Th e fi rst quarter ends here, with U.S. data for March. See how Canada
compares on April 8, when Statistics Canada releases its March fi gures.
www.bls.gov/ces
www.statcan.gc.ca
April 3-5Dana Point, Calif.
Sovereign Wealth Fund SummitSovereign wealth funds are one of the biggest sources of investment fi nance
and deal-making infl uence in the world today. Th is event brings together
North American parties and representatives of sovereign funds from a host
of nations. Organizers bill it as a no-marketing, no-media event exclusively
for institutional investors and C-level investment executives who want to
interact and build relationships. Bonus: it’s on the beach in California.
www.swfsummit.com
April 5-6Toronto
Euromoney Canada ForumHundreds of senior offi cers from issuers across the credit curve meet with
institutional investors at this marquee event. Federal Finance Minister Jim
Flaherty is scheduled to open. Also in Toronto, from the same organizers on
the same dates: the Euromoney Renewable Energy Finance Forum.
www.euromoneyconferences.com/EventDetails/0/3619/Th e-Canada-
Forum.html
www.euromoneyenergy.com/EventDetails/0/3627/2nd-Renewable-
Energy-Finance-Forum-Canada.html
April 12-13Ottawa
Bank of Canada’s Target for the Overnight Rate, Quarterly Monetary Policy ReportWill he or won’t he? Th at’s become a familiar refrain each time Bank of Canada
governor Mark Carney approaches another scheduled interest rate review. As
the year has unfolded, many experts have been predicting a fresh round of
modest interest rate hikes to start in the spring. If that comes as early as
April, your best indicators will be current levels of GDP, infl ation and the
loonie. Carney’s next chance to tinker is May 31.
www.bankofcanada.ca
April 12New York City
Compensation Strategies to Build Shareholder ValueTh e New York Stock Exchange is the venue for this one-day executive compensa-
tion event organized by Corporate Board Member magazine. Th e aim: to
explore the challenges and solutions for boards to attract and retain management
while meeting regulators’ mandates and shareholders’ expectations.
www.boardmember.com/conferencedetail.aspx?id=5667&id2=5663
April 28-29Toronto
National Symposium on Class ActionsTh is in-depth forum, hosted by Osgoode Hall Law School, examines trends,
developments and issues in the area of class actions. Th e roster features leaders
from both sides of the bar as well as experienced judges and academics.
osgoodepd.ca/cle/2010-2011%20Fiscal/2011_class_actions/index.html
May 26-27Deauville, France
G8 Summit Th e massive machine that is the G8 summit (and the increasingly predominant
G20) moves to France in 2011. Th e Group of Eight countries, including
Canada, are due to meet in Deauville, in the region of Normandy. Th e G20 follows
in November at Cannes.
www.g20-g8.com/g8-g20/g20/english/home.9.html
May 30Ottawa
Statistics Canada’s Gross Domestic Product by Industry/Real GDP (for March)
Statscan puts a cap on the fi rst quarter with its release of March results here.
www.statcan.gc.ca
June 5-7Lake Louise, Alta.
24th Annual CIRI Conference Th e Canadian Investor Relations Institute’s annual conference features a roster
of industry leaders and IR experts off ering views and advice on the most pressing
issues facing the IR community and their companies in workshops, panel
discussions and presentations.
www.ciri.org/events/calendar/?event_id=874
June 9Toronto
Institute of Corporate Directors Fellowship Awards and Inaugural National ConferenceA who’s who of Canadian corporate directors will gather at the 14th annual
ICD Fellowship Awards gala as the Institute of Corporate Directors inducts
four leading Canadian directors as ICD fellows. Th is year’s honorees: Ian A.
Bourne, chairman of Ballard Power Systems; Maureen Kemptson Darkes,
director at Canadian National Railway; J. Spencer Lanthier, chairman of
EllisDon Inc.; John A. MacNaughton, chairman of the Business Development
Bank of Canada. Th e full-day ICD conference preceding the gala will focus on
lessons learned from the fi nancial crisis and shareholder engagement.
www.icd.ca
June 15-17New Haven, Conn.
Yale Governance Forum 2011Th is year’s theme is board contributions to long-term corporate performance.
Also: Yale’s Millstein Center annual rising stars of corporate governance awards.
millstein.som.yale.edu/Forum2011
Watch list
Insider
54 Listed//Spring 2011 www.listedmag.com
Ph
oto
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ph
Jef
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k
Listed Was Nunavut Iron Ore Acquisition Inc. created just to make a
play for Baffi nland?
Bruce Walter Yes, the entity was created specifi cally for this. We have a partner-
ship with the Energy and Minerals Group out of Houston [a $2-billion private
equity fi rm], and we intend and expect a longer-term relationship with lots of
deals. But we came together specifi cally for Baffi nland. I’d known John
Calvert, managing partner at Energy and Minerals, for over a decade. Th ey
were the logical people to speak to when we found an opportunity.
Listed Why target Baffi nland?
Bruce Walter It is important to understand what you can and can’t do. Th e
skill set that we have is very well suited to raising fi nancing and dealing with
complex development projects. We have tackled them before. Where Baffi nland
was concerned, we saw a very good asset sitting in a company that the market
had lost confi dence in and where the company appeared to be unable to move
the project forward. Th ose were issues we felt we could solve. It didn’t take
us too long to convince our partners at Energy and Minerals Group that we
could unlock a lot of value moving forward. Th at was really the genesis of
the opportunity.
Listed Th at said, the takeover was complicated, especially when you ended
up in a battle for control with ArcelorMittal.
Bruce Walter What was visible to the public was a fraction of what was actually
going on in terms of various possibilities that we explored. Th ere were probably
four times as many things going on behind the scenes as what was visible to
the public and what was visible was still a pretty complicated deal. In the back-
ground it was very complicated and could have gone off the tracks at any
number of points in any number of ways.
Listed Eventually you came together as a joint venture, which is surely an
unusual arrangement in mining.
Bruce Walter It is a bit unusual, but part of successful dealmaking is having
the persistence and determination not to take a blockade in front of you as the
end of the road, but to look at other ways to proceed. Having gone four or fi ve
rounds bashing one another, we both recognized we could achieve our respective
economic interests better by working together than continuing to compete.
You can’t get emotional about these things. Th e business community in Canada
is small and making enemies is not good business. In this deal we never did
anything that would give ArcelorMittal the reason to be unhappy with us
other than we were a determined competitor.
Listed So who fi rst proposed it?
Bruce Walter We initiated the process. It was immediately received, because
necessity dictated it. I think they recognized we can be decent people to work
with and likewise we had no animus with the Arcelor people. So when it came
to sitting down and deciding whether it was the smartest way to go, it was
much easier than if there had been mudslinging along the way.
Listed Now that the deal is complete, how do you move forward in partner-
ship with Arcelor?
Bruce Walter We spent an awful lot of time thinking about that because at
the end of the day making the investment is just the fi rst step in the process.
You still have to fi gure out how you’re going to profi t in the future, which is
the critical piece. At this juncture we have a good working relationship with
the key people at Arcelor from the top down through their mining group.
We’re always building on that relationship. Hopefully it will be a positive work-
ing relationship so down the road we can realize value on our investment.
Texas-backed Two-StepBruce Walter looked outgunned in the bidding for Baffi nland Iron Mines. But then he brought up partnership Interview by Robert Th ompson
Insider Bruce Walter
Who Chairman, Nunavut Iron Ore Acquisition Inc.
Involvement Bruce Walter is one of Canada’s great deal- makers. He’s worked as a lawyer on mergers and acquisi-tions, headed up senior banking groups at BMO, and workedwith Ian Delaney to take over Sherritt International. Walter’s latest play saw him partner with former Sherritt CEO Jowdat Waheed last year to create Nunavut Iron Ore, a company designed for the unsolicited takeover of Baffi nland Iron Mines (TSX:BIM) and its massive, but challenging, Mary River project. A bidding war with steelmaker ArcelorMittal reached an unusual outcome in January—when Nunavut and Arcelor bought Baffi nland in a 30%-70% joint bid. More than 90% of Baffinland shares were tendered in February, with a final shareholder vote planned for late March.
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